KLF11 (TIEG2) is a pancreas-enriched transcription factor that has elicited significant attention because of its role as negative regulator of exocrine cell growth in vitro and in vivo. However, its functional role in the endocrine pancreas remains to be established. Here, we report, for the first time, to our knowledge, the characterization of KLF11 as a glucose-inducible regulator of the insulin gene. A combination of random oligonucleotide binding, EMSA, luciferase reporter, and chromatin immunoprecipitation assays shows that KLF11 binds to the insulin promoter and regulates its activity in beta cells. Genetic analysis of the KLF11 gene revealed two rare variants (Ala347Ser and Thr220Met) that segregate with diabetes in families with early-onset type 2 diabetes, and significantly impair its transcriptional activity. In addition, analysis of 1,696 type 2 diabetes mellitus and 1,776 normoglycemic subjects show a frequent polymorphic Gln62Arg variant that significantly associates with type 2 diabetes mellitus in North European populations (OR = 1.29, P = 0.00033). Moreover, this variant alters the corepressor mSin3A-binding activity of KLF11, impairs the activation of the insulin promoter and shows lower levels of insulin expression in pancreatic beta cells. In addition, subjects carrying the Gln62Arg allele show decreased plasma insulin after an oral glucose challenge. Interestingly, all three nonsynonymous KLF11 variants show increased repression of the catalase 1 promoter, suggesting a role in free radical clearance that may render beta cells more sensitive to oxidative stress. Thus, both functional and genetic analyses reveal that KLF11 plays a role in the regulation of pancreatic beta cell physiology, and its variants may contribute to the development of diabetes.