Mutations in transcription factors expressed in the pancreatic beta-cell are a major cause of maturity-onset diabetes of the young (MODY). They have also been found in patients diagnosed with type 1 and type 2 diabetes mellitus, which may highlight the difficulty in diagnosing these forms of diabetes or perhaps indicate a direct role in the development of multiple forms of diabetes. We have screened the hepatocyte nuclear factor-1 beta (HNF-1 beta/MODY5) gene for mutations in a group of 126 unrelated Japanese patients with type 2 diabetes and a family history of at least one first degree relative with diabetes. We identified one patient with a nonsense mutation (R276X) and another with a missense mutation (S465R). These mutations were present in the heterozygous state and were not found in 132 nondiabetic subjects (264 normal alleles). We identified a second patient with the S465R mutation on screening a second group of 272 randomly selected type 2 diabetic patients but not in another 122 nondiabetic subjects. Functional studies indicated that R276X-HNF-1 beta was inactive and S465R-HNF-1 beta exhibited a 22% reduction in activity compared with the wild-type protein. The S465R mutation may function in a dominant-negative manner. The subject with the R276X mutation had MODY5 misdiagnosed as common type 2 diabetes. He was diagnosed with diabetes at 13 yr of age and also had small kidneys with multiple bilateral renal cysts and decreased urinary concentrating ability. The two subjects with the S465R mutation had typical late-onset type 2 diabetes and no evidence of kidney disease. We have identified two novel mutations in human HNF-1 beta gene. The prevalence of MODY5 among our population of Japanese diabetes patients with a strong positive family of disease is 0.8%. The S465R mutation was found in 0.5% of our patients with common type 2 diabetes and thus may be a rare genetic risk factor contributing to the development of type 2 diabetes rather than MODY5.