Background and Purpose Intra-islet heparan sulfate (HS) plays an important role in the maintenance of the pancreatic islet function. The aim of this study was to investigate the effect mechanism of HS loss on the functioning of islets in diabetic mice. Experimental Approach The hypoglycemic effect of a heparanase inhibitor, OGT2115, was tested in streptozotocin-induced diabetic mice. The islets of pancreas sections were also stained to reveal their morphology. An insulinoma MIN6 cell line and primary isolated murine islets were used to investigate the effect of OGT2115 in vitro. Key Results Intra-islet HS was clearly lost in streptozotocin-induced diabetic mice due to the increased heparanase expression in damaged islets. OGT2115 prevented intra-islet HS loss to improve the glucose profile and insulin secretion in streptozotocin-treated mice. The apoptosis of pancreatic beta cells, the infiltration of mononuclear macrophages, CD4 and CD8 positive T-cells in islets was reduced by OGT2115 in streptozotocin-treated mice, but OGT2115 did not alter the direct streptozotocin-induced damage in vitro. The expression of heparanase was increased in high glucose-treated isolated islets but not in response to direct streptozotocin stimulation. Further experiments showed that high glucose stimuli could decrease the expression of peroxisome proliferator-activated receptor gamma (PPARγ) in cultured islets, thereby relieving the PPARγ-induced inhibition of heparanase gene expression. Conclusion and Implications Hyperglycemia could cause intra-islet HS loss by elevating the expression of heparanase, thereby aggravating inflammatory cell infiltration and islet damage. Inhibition of heparanase might provide benefit for pancreatic beta cell protection in type 1 diabetes.