Genome-wide association studies have identified Ankyrin-1 (ANK1) as a common type 2 diabetes (T2D) susceptibility locus. However, the underlying causal variants and functional mechanisms remain unknown. We screened for 8 tag single nucleotide polymorphisms (SNPs) in ANK1 between 2 case-control studies. Genotype analysis revealed significant associations of 3 SNPs, rs508419 (first identified here), rs515071, and rs516946 with T2D (P < 0.001). These SNPs were in linkage disequilibrium (r(2) > 0.80); subsequent analysis indicated that the CCC haplotype associated with increased T2D susceptibility (OR 1.447, P < 0.001). Further mapping showed that rs508419 resides in the muscle-specific ANK1 gene promoter. Allele-specific mRNA and protein level measurements confirmed association of the C allele with increased small ANK1 (sAnk1) expression in human skeletal muscle (P = 0.018 and P < 0.001, respectively). Luciferase assays showed increased rs508419-C allele transcriptional activity in murine skeletal muscle C2C12 myoblasts, and electrophoretic mobility-shift assays demonstrated altered rs508419 DNA-protein complex formation. Glucose uptake was decreased with excess sAnk1 expression upon insulin stimulation. Thus, the ANK1 rs508419-C T2D-risk allele alters DNA-protein complex binding leading to increased promoter activity and sAnk1 expression; thus, increased sAnk1 expression in skeletal muscle might contribute to T2D susceptibility.