Rapidly accumulating evidence shows that common T-cell transcription factor (TCF)7L2 polymorphisms confer risk of type 2 diabetes through unknown mechanisms. We examined the association between four TCF7L2 single nucleotide polymorphisms (SNPs), including rs7903146, and measures of insulin sensitivity and insulin secretion in 1,697 Europid men and women of the population-based MRC (Medical Research Council)-Ely study. The T-(minor) allele of rs7903146 was strongly and positively associated with fasting proinsulin (P = 4.55 × 10⁻⁹) and 32,33 split proinsulin (P = 1.72 × 10⁻⁴) relative to total insulin levels; i.e., differences between T/T and C/C homozygotes amounted to 21.9 and 18.4% respectively. Notably, the insulin-to-glucose ratio (IGR) at 30-min oral glucose tolerance test (OGTT), a frequently used surrogate of first-phase insulin secretion, was not associated with the TCF7L2 SNP (P > 0.7). However, the insulin response (IGR) at 60-min OGTT was significantly lower in T-allele carriers (P = 3.5 × 10⁻³). The T-allele was also associated with higher A1C concentrations (P = 1.2 × 10⁻²) and reduced β-cell function, assessed by homeostasis model assessment of β-cell function (P = 2.8 × 10⁻²). Similar results were obtained for the other TCF7L2 SNPs. Of note, both major genes involved in proinsulin processing (PC1, PC2) contain TCF-binding sites in their promoters. Our findings suggest that the TCF7L2 risk allele may predispose to type 2 diabetes by impairing β-cell proinsulin processing. The risk allele increases proinsulin levels and diminishes the 60-min but not 30-min insulin response during OGTT. The strong association between the TCF7L2 risk allele and fasting proinsulin but not insulin levels is notable, as, in this unselected and largely normoglycemic population, external influences on β-cell stress are unlikely to be major factors influencing the efficiency of proinsulin processing.