Ghrelin, an acylated 28-amino acid peptide, was isolated from the stomach as the endogenous ligand for the growth hormone (GH) secretagogue receptor (GHS-R). Circulating ghrelin is produced predominantly in the oxyntic mucosa of stomach. Ghrelin potently stimulates GH release and feeding, and exhibits positive cardiovascular effects, suggesting a possible clinical application. Low plasma ghrelin levels are associated with elevated fasting insulin levels and insulin resistance, suggesting both physiological and pathophysiological roles for ghrelin in glucose metabolism. Here, we review the physiological role of ghrelin in the regulation of insulin release and glucose metabolism, and a potential therapeutic avenue to treat type 2 diabetes by manipulating ghrelin and/or its signaling. Ghrelin inhibits insulin release in mice, rats and humans. The signal transduction mechanisms of ghrelin in islet beta-cells are distinct from those utilized in GH-releasing and/or GHS-R-expressing cells. Ghrelin is expressed in pancreatic islets and released into pancreatic microcirculations. Pharmacological and genetic blockades of islet-derived ghrelin markedly augment glucose-induced insulin release in vitro. In high-fat diet-induced mildly obese mice, ghrelin-deficiency enhances insulin release and prevents impaired glucose tolerance. Thus, manipulation of insulinostatic function of ghrelin--GHS-R system, particularly that in islets, could optimize the amount of insulin release to meet the systemic demand, providing a potential therapeutic application to prevent type 2 diabetes.