Type 2 diabetes mellitus (T2DM) progresses from compensated insulin resistance to beta cell failure resulting in uncompensated hyperglycemia, a process replicated in the Zucker diabetic fatty (ZDF) rat. The Nlrp3 inflammasome has been implicated in obesity-induced insulin resistance and beta cell failure. Endocannabinoids contribute to insulin resistance through activation of peripheral CB₁ receptors (CB₁Rs) and also promote beta cell failure. Here we show that beta cell failure in adult ZDF rats is not associated with CB₁R signaling in beta cells, but rather in M1 macrophages infiltrating into pancreatic islets, and that this leads to activation of the Nlrp3-ASC inflammasome in the macrophages. These effects are replicated in vitro by incubating wild-type human or rodent macrophages, but not macrophages from CB₁R-deficient (Cnr1^−/−) or Nlrp3^−/− mice, with the endocannabinoid anandamide. Peripheral CB₁R blockade, in vivo depletion of macrophages or macrophage-specific knockdown of CB₁R reverses or prevents these changes and restores normoglycemia and glucose-induced insulin secretion. These findings implicate endocannabinoids and inflammasome activation in beta cell failure and identify macrophage-expressed CB₁R as a therapeutic target in T2DM.