Beta-cell dysfunction and impaired insulin production are hallmarks of diabetes, but despite the growing diabetes epidemic, the molecular mechanisms underlying this disease have remained unclear. We identified thioredoxin-interacting protein (TXNIP), a cellular redox regulator, as a crucial factor in beta-cell biology and show that beta-cell TXNIP is upregulated in diabetes, whereas TXNIP deficiency protects against diabetes by preventing beta-cell apoptosis. Here we show that TXNIP and diabetes induce beta-cell expression of a specific microRNA, miR-204, which in turn blocks insulin production by directly targeting and downregulating MAFA, a known insulin transcription factor. In particular, we first discovered the regulation of miR-204 by TXNIP by microarray analysis, followed by validation studies in INS-1 beta cells, islets of Txnip-deficient mice, diabetic mouse models and primary human islets. We then further found that TXNIP induces miR-204 by inhibiting the activity of signal transducer and activator of transcription 3 (STAT3), a transcription factor that is involved in miR-204 regulation. We also identified MAFA as a target that is downregulated by miR-204. Taken together, our results demonstrate that TXNIP controls microRNA expression and insulin production and that miR-204 is involved in beta-cell function. The newly identified TXNIP-miR-204-MAFA-insulin pathway may contribute to diabetes progression and provides new insight into TXNIP function and microRNA biology in health and disease.