Autophagy is a lysosomal degradation process of redundant or faulty cell components in normal cells. However, certain diseases are associated with dysfunctional autophagy. Rapamycin, a major immunosuppressant used in islet transplantation, is an inhibitor of mammalian target of rapamycin and is known to cause induction of autophagy. The objective of this study was to evaluate the in vitro and in vivo effects of rapamycin on pancreatic β cells. Rapamycin induced upregulation of autophagy in both cultured isolated islets and pancreatic β cells of green fluorescent protein–microtubule‐associated protein 1 light chain 3 transgenic mice. Rapamycin reduced the viability of isolated β cells and down‐regulated their insulin function, both in vitro and in vivo. In addition, rapamycin increased the percentages of apoptotic β cells and dead cells in both isolated and in vivo intact islets. Treatment with 3‐methyladenine, an inhibitor of autophagy, abrogated the effects of rapamycin and restored β‐cell function in both in vitro experiments and animal experiments. We conclude that rapamycin‐induced islet dysfunction is mediated through upregulation of autophagy, with associated downregulation of insulin production and apoptosis of β cells. The results also showed that the use of an autophagy inhibitor abrogated these effects and promoted islet function and survival. The study findings suggest that targeting the autophagy pathway could be beneficial in promoting islet graft survival after transplantation.