Insufficient insulin secretion is a hallmark of type 2 diabetes and has been attributed to beta cell identity loss characterized by decreased expression of several key beta cell genes. The pro-inflammatory factor BMP-2 is upregulated in islets of Langerhans from individuals with diabetes and acts as an inhibitor of beta cell function and proliferation. Exposure to BMP-2 induces expression of Id1-4, Hes-1, and Hey-1 which are transcriptional regulators associated with loss of differentiation. The aim of this study was to investigate the mechanism by which BMP-2 induces beta cell dysfunction and loss of cell maturity. Mouse islets exposed to BMP-2 for 10 days showed impaired glucose-stimulated insulin secretion and beta cell proliferation. BMP-2-induced beta cell dysfunction was associated with decreased expression of cell maturity and proliferation markers specific to the beta cell such as Ins1, Ucn3, and Ki67 and increased expression of Id1-4, Hes-1, and Hey-1. The top 30 most regulated proteins significantly correlated with corresponding mRNA expression. BMP-2-induced gene expression changes were associated with a predominant reduction in acetylation of H3K27 and a decrease in NeuroD1 chromatin binding activity. These results show that BMP-2 induces loss of beta cell maturity and suggest that remodeling of H3K27ac and decreased NeuroD1 DNA binding activity participate in the effect of BMP-2 on beta cell dysfunction.