Chronic pancreatitis (CP) is a progressive inflammatory disease characterized by irreversible destruction of pancreatic secretory parenchyma, fibrosis, exocrine atrophy, and endocrine insufficiency leading to diabetes. Secondary diabetes occurring in CP subsequent to destruction of pancreatic β-cells is distinct, since it involves β-cell dysfunction amidst an inflammatory milieu. Even though considerable knowledge is available on the pathophysiology and clinical management of CP, relatively much less is known about the molecular events leading to β-cell dysfunction. Investigators have demonstrated that altered morphology, reduced β-cell mass, and β-cell numbers result in endocrine insufficiency. However, recent reports and our observations suggest that β-cell dysfunction develops in the early stages of CP while clinical diabetes manifests later, when there is profound fibrosis. In the early stages, altered internal milieu and physiology arising due to inflammation and release of cytokines might lead to deranged signaling pathways and islet dysfunction. Subsequently, development of fibrosis causes islet destruction. This suggests that endocrine deficiency in CP is multifactorial. Although the role of transcription factors (Pdx-1, MafA, NeuroD) on β-cell functions is understood, alterations in internal milieu of pancreatic tissue that affects β-cell functions in CP has not been elucidated. In this review, we summarize the factors that have an effect on islet functions. Understanding molecular events of β-cell dysfunction in CP can lead to the development of targeted preventive and therapeutic modalities.