β-Cell compensation is an essential mechanism by which β-cells increase insulin secretion for overcoming insulin resistance to maintain euglycemia in obesity. Failure of β-cells to compensate for insulin resistance contributes to insulin insufficiency and overt diabetes. To understand the mechanism of β-cell compensation, we characterized the role of forkhead box O1 (FoxO1) in β-cell compensation in mice under physiological and pathological conditions. FoxO1 is a key transcription factor that serves as a nutrient sensor for integrating insulin signaling to cell metabolism, growth, and proliferation. We showed that FoxO1 improved β-cell compensation via 3 distinct mechanisms by increasing β-cell mass, enhancing β-cell glucose sensing, and augmenting β-cell antioxidative function. These effects accounted for increased glucose-stimulated insulin secretion and enhanced glucose tolerance in β-cell-specific FoxO1-transgenic mice. When fed a high-fat diet, β-cell-specific FoxO1-transgenic mice were protected from developing fat-induced glucose disorder. This effect was attributable to increased β-cell mass and function. Furthermore, we showed that FoxO1 activity was up-regulated in islets, correlating with the induction of physiological β-cell compensation in high-fat-induced obese C57BL/6J mice. These data characterize FoxO1 as a pivotal factor for orchestrating physiological adaptation of β-cell mass and function to overnutrition and obesity.