Failure of pancreatic and duodenal homeobox factor 1 (PDX1) to localise in the nucleus of islet beta cells under high-fat diet (HFD) conditions may be an early functional defect that contributes to beta cell failure in type 2 diabetes; however, the mechanism of PDX1 intracellular mislocalisation is unclear. Stress granules (SGs) are membrane-less cytoplasmic structures formed under stress that impair nucleocytoplasmic transport by sequestering nucleocytoplasmic transport factors and components of the nuclear pore complex. In this study, we investigated the stimulators that trigger SG formation in islet beta cells and the effects of SGs on PDX1 localisation and beta cell function. The effect of palmitic acid (PA) on nucleocytoplasmic transport was investigated by using two reporters, S-tdTomato and S-GFP. SG assembly in rat insulinoma cell line INS1 cells, human islets under PA stress, and the pancreas of diet-induced obese mice was analysed using immunofluorescence and immunoblotting. SG protein components were identified through mass spectrometry. SG formation was blocked by specific inhibitors or genetic deletion of essential SG proteins, and then PDX1 localisation and beta cell function were investigated in vitro and in vivo. We showed that saturated fatty acids (SFAs) are endogenous stressors that disrupted nucleocytoplasmic transport and stimulated SG formation in pancreatic beta cells. Using mass spectrometry approaches, we revealed that several nucleocytoplasmic transport factors and PDX1 were localised to SGs after SFA treatment, which inhibited glucose-induced insulin secretion. Furthermore, we found that SFAs induced SG formation in a phosphoinositide 3-kinase (PI3K)/eukaryotic translation initiation factor 2α (EIF2α) dependent manner. Disruption of SG assembly by PI3K/EIF2α inhibitors or genetic deletion of T cell restricted intracellular antigen 1 (TIA1) in pancreatic beta cells effectively suppressed PA-induced PDX1 mislocalisation and ameliorated HFD-mediated beta cell dysfunction. Our findings suggest a link between SG formation and beta cell dysfunction in the presence of SFAs. Preventing SG formation may be a potential therapeutic strategy for treating obesity and type 2 diabetes.