Functional enhancer annotation is a valuable first step for understanding tissue-specific transcriptional regulation and prioritizing disease-associated non-coding variants for investigation. However, unbiased enhancer discovery in physiologically relevant contexts remains a major challenge. To discover regulatory elements pertinent to diabetes, we conducted a CRISPR interference (CRISPRi) screen in the human pluripotent stem cell (hPSC) pancreatic differentiation system. Among the enhancers uncovered, we focused on a long-range enhancer ∼664 kb from the ONECUT1 promoter, as coding mutations in ONECUT1 cause pancreatic hypoplasia and neonatal diabetes. Homozygous enhancer deletion in hPSCs was associated with a near-complete loss of ONECUT1 gene expression and compromised pancreatic differentiation. This enhancer contains a confidently fine-mapped type 2 diabetes (T2D) associated variant (rs528350911) which disrupts a GATA motif. Introduction of the risk variant into hPSCs revealed substantially reduced binding of key pancreatic transcription factors (GATA4, GATA6 and FOXA2) on the edited allele, accompanied by a slight reduction of ONECUT1 transcription, supporting a causal role for this risk variant in metabolic disease. This work expands our knowledge about transcriptional regulation in pancreatic development through the characterization of a long-range enhancer and highlights the utility of enhancer discovery in disease-relevant settings for understanding monogenic and complex disease.