Type 2 diabetes mellitus (T2DM) progresses from compensated insulin resistance to beta cell failure resulting in uncompensated hyperglycemia, a process replicated in the Zucker diabetic fatty (ZDF) rat. The Nlrp3 inflammasome has been implicated in obesity-induced insulin resistance and beta cell failure. Endocannabinoids contribute to insulin resistance through activation of peripheral CB1 receptors (CB(1)Rs) and also promote beta cell failure. Here we show that beta cell failure in adult ZDF rats is not associated with CB(1)R signaling in beta cells, but rather in M1 macrophages infiltrating into pancreatic islets, and that this leads to activation of the Nlrp3-ASC inflammasome in the macrophages. These effects are replicated in vitro by incubating wild-type human or rodent macrophages, but not macrophages from CB(1)R-deficient (Cnr1(-/-)) or Nlrp3(-/-) mice, with the endocannabinoid anandamide. Peripheral CB(1)R blockade, in vivo depletion of macrophages or macrophage-specific knockdown of CB(1)R reverses or prevents these changes and restores normoglycemia and glucose-induced insulin secretion. These findings implicate endocannabinoids and inflammasome activation in beta cell failure and identify macrophage-expressed CB(1)R as a therapeutic target in T2DM.