Gain-of-function (GOF) mutations in the ATP-sensitive potassium (KATP) channels cause neonatal diabetes. Despite the well-established genetic root of the disease, pathways modulating disease severity and treatment effectiveness remain poorly understood. Patient phenotypes can vary from severe diabetes to remission, even in individuals with the same mutation and within the same family, suggesting that subtle modifiers can influence disease outcome. We have tested the underlying mechanism of transient vs. permanent neonatal diabetes in KATP-GOF mice treated for 14 days with glibenclamide. Some KATP-GOF mice show remission of diabetes and enhanced insulin sensitivity long after diabetes treatment has ended, while others maintain severe insulin-resistance. However, insulin sensitivity is not different between the two groups before or during diabetes induction, suggesting that improved sensitivity is a consequence, rather than the cause of, remission, implicating other factors modulating glucose early in diabetes progression. Leptin, glucagon, insulin, and glucagon-like peptide-1 are not different between remitters and nonremitters. However, liver glucose production is significantly reduced before trans-gene induction in remitter, relative to nonremitter and nontreated, mice. Surprisingly, while subsequent remitter animals exhibited normal serum cytokines, nonremitter mice showed increased cytokines, which paralleled the divergence in blood glucose. Together, these results suggest that systemic inflammation may play a role in the remitting versus non-remitting outcome. Supporting this conclusion, treatment with the anti-inflammatory meloxicam significantly increased the fraction of remitting animals. Beyond neonatal diabetes, the potential for inflammation and glucose production to exacerbate other forms of diabetes from a compensated state to a glucotoxic state should be considered. © 2018 the American Physiological Society.