Both type 2 diabetes (T2D) and obesity are characterized by excessive hyperlipidaemia and subsequent lipid droplet (LD) accumulation in adipose tissue. To investigate whether LDs also accumulate in β‐cells of T2D patients, we assessed the expression of PLIN2, a LD‐associated protein, in non‐diabetic (ND) and T2D pancreata. We observed an up‐regulation of PLIN2 mRNA and protein in β‐cells of T2D patients, along with significant changes in the expression of lipid metabolism, apoptosis and oxidative stress genes. The increased LD buildup in T2D β‐cells was accompanied by inhibition of nuclear translocation of TFEB, a master regulator of autophagy and by down‐regulation of lysosomal biomarker LAMP2. To investigate whether LD accumulation and autophagy were influenced by diabetic conditions, we used rat INS‐1 cells to model the effects of hyperglycaemia and hyperlipidaemia on autophagy and metabolic gene expression. Consistent with human tissue, both LD formation and PLIN2 expression were enhanced in INS‐1 cells under hyperglycaemia, whereas TFEB activation and autophagy gene expression were significantly reduced. Collectively, these results suggest that lipid clearance and overall homeostasis is markedly disrupted in β‐cells under hyperglycaemic conditions and interventions ameliorating lipid clearance could be beneficial in reducing functional impairments in islets caused by glucolipotoxicity.