We investigated the presence and the function of hepatocyte nuclear factor-1alpha (HNF-1alpha) mutations in 26 Japanese subjects with type 2 diabetes. The subjects were between 20 and 39 years of age on diagnosis and had diabetic first-degree relatives. Two different frameshift mutations were found in 2 subjects (8 %). One novel mutation, T539fsdelC (deletion of C in codon 539 for Thr), is predicted to generate a protein of normal 539 residues at the N-terminus followed by an abnormal 119 amino acid protein. The mutation, P291fsinsC (insertion of C in codon 291 for Pro) should lead to production of a truncated protein of 315 amino acids. Transfection reporter assay using MIN6 and HepG2 cells revealed both mutations to have null function in the transactivation of reporter gene expression. When transfected with wild-type gene, these mutations behaved as dominant-negative regulators in both cells. An equimolar amount of T539fsdelC reduced wild-type activity by approximately 80% in MIN6 cells, while the same concentration of P291fsinsc reduced it by 30%. The sequences responsible for the transactivation activity of HNF-1alpha are confined largely to amino acids 547-628, so that the T539fsdelC mutation, which affects this entire region, replacing amino acids 540-631 with an abnormal 119 amino acid protein, may acquire a potent dominant-negative function.