Beta-cell loss is a major cause of the pathogenesis of diabetes. Elevated levels of free fatty acids may contribute to the loss of β-cells. Using a transgenic zebrafish, we screened ~50 seaweed crude extracts to identify materials that protect β-cells from free fatty acid damage. We found that an extract of the red seaweed Polysiphonia japonica (PJE) had a β-cell protective effect. We examined the protective effect of PJE on palmitate-induced damage in β-cells. PJE was found to preserve cell viability and glucose-induced insulin secretion in a pancreatic β-cell line, Ins-1, treated with palmitate. Additionally, PJE prevented palmitate-induced insulin secretion dysfunction in zebrafish embryos and mouse primary islets and improved insulin secretion in β-cells against palmitate treatment. These findings suggest that PJE protects pancreatic β-cells from palmitate-induced damage. PJE may be a potential therapeutic functional food for diabetes.