• PTPN2 expression is dynamically regulated during SC-islet differentiation and altered in T1D β cells, suggesting a role in β-cell stress responses.
• PTPN2 deficiency amplifies interferon-induced inflammatory signalling and impairs SC-islet differentiation efficiency in vitro.
• PTPN2-knockout SC-islets show reduced glycaemic control after implantation, linked to diminished endocrine identity and enhanced interferon signalling.
• PTPN2 is a potential therapeutic target to preserve β-cell function and improve stem cell-derived islet maturation for diabetes cell replacement therapy.