The Greenlandic population, a small and historically isolated founder population comprising about 57,000 inhabitants, has experienced a dramatic increase in type 2 diabetes (T2D) prevalence during the past 25 years1. Motivated by this, we performed association mapping of T2D-related quantitative traits in up to 2,575 Greenlandic individuals without known diabetes. Using array-based genotyping and exome sequencing, we discovered a nonsense p.Arg684Ter variant (in which arginine is replaced by a termination codon) in the gene TBC1D4 with an allele frequency of 17%. Here we show that homozygous carriers of this variant have markedly higher concentrations of plasma glucose (β = 3.8 mmol l−1, P = 2.5 × 10−35) and serum insulin (β = 165 pmol l−1, P = 1.5 × 10−20) 2 hours after an oral glucose load compared with individuals with other genotypes (both non-carriers and heterozygous carriers). Furthermore, homozygous carriers have marginally lower concentrations of fasting plasma glucose (β = −0.18 mmol l−1, P = 1.1 × 10−6) and fasting serum insulin (β = −8.3 pmol l−1, P = 0.0014), and their T2D risk is markedly increased (odds ratio (OR) = 10.3, P = 1.6 × 10−24). Heterozygous carriers have a moderately higher plasma glucose concentration 2 hours after an oral glucose load than non-carriers (β = 0.43 mmol l−1, P = 5.3 × 10−5). Analyses of skeletal muscle biopsies showed lower messenger RNA and protein levels of the long isoform of TBC1D4, and lower muscle protein levels of the glucose transporter GLUT4, with increasing number of p.Arg684Ter alleles. These findings are concomitant with a severely decreased insulin-stimulated glucose uptake in muscle, leading to postprandial hyperglycaemia, impaired glucose tolerance and T2D. The observed effect sizes are several times larger than any previous findings in large-scale genome-wide association studies of these traits2, 3, 4 and constitute further proof of the value of conducting genetic association studies outside the traditional setting of large homogeneous populations.