Angiopoietin-like 4 (ANGPTL4) is an endogenous inhibitor of lipoprotein lipase that modulates lipid levels, coronary atherosclerosis risk, and nutrient partitioning. We hypothesize that loss of ANGPTL4 function might improve glucose homeostasis and decrease risk of type 2 diabetes (T2D). We investigate protein-altering variants in ANGPTL4 among 58,124 participants in the DiscovEHR human genetics study, with follow-up studies in 82,766 T2D cases and 498,761 controls. Carriers of p.E40K, a variant that abolishes ANGPTL4 ability to inhibit lipoprotein lipase, have lower odds of T2D (odds ratio 0.89, 95% confidence interval 0.85-0.92, p = 6.3 × 10-10), lower fasting glucose, and greater insulin sensitivity. Predicted loss-of-function variants are associated with lower odds of T2D among 32,015 cases and 84,006 controls (odds ratio 0.71, 95% confidence interval 0.49-0.99, p = 0.041). Functional studies in Angptl4-deficient mice confirm improved insulin sensitivity and glucose homeostasis. In conclusion, genetic inactivation of ANGPTL4 is associated with improved glucose homeostasis and reduced risk of T2D.