Genetic studies have identified numerous loci associated with type 2 diabetes (T2D), but the functional role of many loci has remained unexplored. In this study, we engineered isogenic knockout human embryonic stem cell (hESC) lines for 20 genes associated with T2D risk. We systematically examined β-cell differentiation, insulin production and secretion, and survival. We performed RNA-seq and ATAC-seq on hESC-β cells from each knockout line. Analyses of T2D GWAS signals overlapping with HNF4A-dependent ATAC peaks identified a specific SNP as a likely causal variant. In addition, we performed integrative association analyses and identified four genes ( CP, RNASE1, PCSK1N and GSTA2 ) associated with insulin production, and two genes ( TAGLN3 and DHRS2 ) associated with sensitivity to lipotoxicity. Finally, we leveraged deep ATAC-seq read coverage to assess allele-specific imbalance at variants heterozygous in the parental hESC line, to identify a single likely functional variant at each of 23 T2D GWAS signals.