Recently, a syndrome of Mutant INS-gene-induced Diabetes of Youth (MIDY, derived from one of 26 distinct mutations) has been identified as a cause of insulin-deficient diabetes, resulting from expression of a misfolded mutant proinsulin protein in the endoplasmic reticulum (ER) of insulin-producing pancreatic beta cells. Genetic deletion of one, two, or even three alleles encoding insulin in mice does not necessarily lead to diabetes. Yet MIDY patients are INS-gene heterozygotes; inheritance of even one MIDY allele, causes diabetes. Although a favored explanation for the onset of diabetes is that insurmountable ER stress and ER stress response from the mutant proinsulin causes a net loss of beta cells, in this report we present three surprising and interlinked discoveries. First, in the presence of MIDY mutants, an increased fraction of wild-type proinsulin becomes recruited into nonnative disulfide-linked protein complexes. Second, regardless of whether MIDY mutations result in the loss, or creation, of an extra unpaired cysteine within proinsulin, Cys residues in the mutant protein are nevertheless essential in causing intracellular entrapment of co-expressed wild-type proinsulin, blocking insulin production. Third, while each of the MIDY mutants induces ER stress and ER stress response; ER stress and ER stress response alone appear insufficient to account for blockade of wild-type proinsulin. While there is general agreement that ultimately, as diabetes progresses, a significant loss of beta cell mass occurs, the early events described herein precede cell death and loss of beta cell mass. We conclude that the molecular pathogenesis of MIDY is initiated by perturbation of the disulfide-coupled folding pathway of wild-type proinsulin.