Butyrate, a gut microbial metabolite, has beneficial effects on glucose homeostasis and has become an attractive drug candidate for type 2 diabetes (T2D). Recently, we showed that butyrate protects pancreatic beta cells against cytokine-induced dysfunction. In this study, we explored the underlying mechanisms of butyrate action. Pancreatic mouse islets were exposed to a non-cytotoxic concentration of interleukin-1β (IL-1β) for 10 days to mimic low-grade inflammation in T2D. Similar to the effect of butyrate, an isoform-selective histone deacetylase 3 (HDAC3) inhibitor normalized IL-1β-reduced glucose-stimulated insulin secretion and insulin content. In contrast, free fatty acid receptor 2 and 3 (FFAR2/3) agonists failed to normalize IL-1β-induced beta cell dysfunction. Furthermore, butyrate inhibited HDAC activity and increased the acetylation of histone H3 and H4 by 3- and 10-fold, respectively. Genome-wide analysis of histone H3 lysine 27 acetylation (H3K27ac) revealed that butyrate mainly increased H3K27ac at promoter regions (74%), while H3K27ac peaks regulated by IL-1β were more equally distributed at promoters (38%), introns (23%) and intergenic regions (23%). Gene ontology analysis showed that butyrate increased IL-1β-reduced H3K27ac levels near several genes related to hormone secretion and reduced IL-1β-increased H3K27ac levels near genes associated with inflammatory responses. Butyrate alone increased H3K27ac near many genes related to MAPK signaling, hormone secretion, and differentiation, and decreased H3K27ac at genes involved in cell replication. Together, these results suggest that butyrate prevents IL-1β-induced pancreatic islet dysfunction by inhibition of HDACs resulting in changes in H3K27ac levels at genes relevant for beta cell function and inflammatory responses.