Permanent neonatal diabetes (PNDM) is diagnosed in the first three months of life and is a major management problem as patients require lifelong insulin injections. Recently, activating mutations in the KCNJ11 gene which encodes the Kir6.2 subunit of the KATP channels in the pancreatic beta-cells were found to be an important cause of PNDM. The mutated KATP channels do not close in the presence of adenosine triphosphate (ATP) so the beta-cell membrane is hyperpolarized and insulin secretion does not occur. Some patients have DEND syndrome (developmental delay, epilepsy and neonatal diabetes) with the neurological features arising from mutated KATP channels in muscle, nerve and brain. Defining a genetic aetiology has not only given insights into clinical classification and disease mechanism, but has also influenced treatment. Sulphonylureas, by binding the sulphonylurea receptor, can close the KATP channel. This has led to patients who were insulin-dependent being able to discontinue insulin injections and achieve excellent control with sulphonylurea tablets. In this article we discuss the work that established Kir6.2 mutations as a common cause of neonatal diabetes, the clinical features, the underlying mechanism and the impact on patient treatment.