AIMS/HYPOTHESIS: We studied the physiological, metabolic and hormonal mechanisms underlying the elevated risk of type 2 diabetes in carriers of TCF7L2 gene. METHODS: We undertook genotyping of 81 healthy young Danish men for rs7903146 of TCF7L2 and carried out various beta cell tests including: 24 h glucose, insulin and glucagon profiles; OGTT; mixed meal test; IVGTT; hyperglycaemic clamp with co-infusion of glucagon-like peptide (GLP)-1 or glucose-dependent insulinotropic polypeptide (GIP); and a euglycaemic-hyperinsulinaemic clamp combined with glucose tracer infusion to study hepatic and peripheral insulin action. RESULTS: Carriers of the T allele were characterised by reduced 24 h insulin concentrations (p < 0.05) and reduced insulin secretion relative to glucose during a mixed meal test (beta index: p < 0.003), but not during an IVGTT. This was further supported by reduced late-phase insulinotropic action of GLP-1 (p = 0.03) and GIP (p = 0.07) during a 7 mmol/l hyperglycaemic clamp. Secretion of GLP-1 and GIP during the mixed meal test was normal. Despite elevated hepatic glucose production, carriers of the T allele had significantly reduced 24 h glucagon concentrations (p < 0.02) suggesting altered alpha cell function. CONCLUSIONS/INTERPRETATION: Elevated hepatic glucose production and reduced insulinotropic effect of incretin hormones contribute to an increased risk of type 2 diabetes in carriers of the rs7903146 risk T allele of TCF7L2.