The nature of obesity-associated islet inflammation and its impact on β cell abnormalities remains poorly defined. Here, we explore immune cell components of islet inflammation and define their roles in regulating β cell function and proliferation. Islet inflammation in obese mice is dominated by macrophages. We identify two islet-resident macrophage populations, characterized by their anatomical distributions, distinct phenotypes, and functional properties. Obesity induces the local expansion of resident intra-islet macrophages, independent of recruitment from circulating monocytes. Functionally, intra-islet macrophages impair β cell function in a cell-cell contact-dependent manner. Increased engulfment of β cell insulin secretory granules by intra-islet macrophages in obese mice may contribute to restricting insulin secretion. In contrast, both intra- and peri-islet macrophage populations from obese mice promote β cell proliferation in a PDGFR signaling-dependent manner. Together, these data define distinct roles and mechanisms for islet macrophages in the regulation of islet β cells.