The molecular mechanisms underpinning susceptibility loci for type 2 diabetes (T2D) remain poorly understood. Coding variants in peptidylglycine α-amidating monooxygenase (PAM) are associated with both T2D risk and insulinogenic index. Here, we demonstrate that the T2D risk alleles impact negatively on overall PAM activity via defects in expression and catalytic function. PAM deficiency results in reduced insulin content and altered dynamics of insulin secretion in a human β-cell model and primary islets from cadaveric donors. Thus, our results demonstrate a role for PAM in β-cell function, and establish molecular mechanisms for T2D risk alleles at this locus.