• PTPN2 expression is dynamically regulated during SC-islet differentiation and altered in T1D β cells, with increased expression in recent-onset and decreased in long-standing T1D.
• PTPN2 deficiency exacerbates interferon-induced inflammatory signalling in stem cells and differentiated somatic metabolic cells.
• PTPN2 knockout impairs SC-islet differentiation efficiency in vitro, partly via increased hedgehog signalling.
• PTPN2-deficient SC-islets show reduced glycaemic control after implantation in vivo, associated with diminished endocrine identity and enhanced interferon signalling.