Genome-wide association studies have shown that the rs340874 single nucleotide polymorphism (SNP) in PROX1 is a genetic susceptibility factor for type 2 diabetes. We conducted genetic and molecular studies to better understand the role of PROX1 in type 2 diabetes. We assessed the impact of the whole common genetic variability of PROX1 (80 SNPs) on type 2 diabetes-related biochemical traits in the HELENA (Healthy Lifestyle in Europe by Nutrition in Adolescence) study (n = 1,155). Three SNPs (rs340838, rs340837, and rs340836) were significantly associated with fasting plasma insulin levels (P ≤ 0.00295). We evaluated the impact of nine PROX1 SNPs (the three insulin-associated SNPs plus six SNPs in strong linkage disequilibrium) on luciferase reporter gene expression. The insulin-lowering alleles of rs340874, rs340873, and rs340835 were associated with lower luciferase activity in MIN6 and HepG2 cells (except for rs340874, which was in HepG2 cells only). Electrophoretic mobility shift assays indicated that specific nuclear protein bindings occur at the three SNPs in HepG2 cells, with allele-binding differences for rs340874. We also showed that the knockdown of Prox1 expression by small interfering RNAs in INS-1E cells resulted in a 1.7-fold reduction in glucose-stimulated insulin secretion. All together, we propose that reduced expression of PROX1 by cis-regulatory variants results in altered β-cell insulin secretion and thereby confers susceptibility to type 2 diabetes.