Genome-wide association study (GWAS) data showed that the protein tyrosine phosphatase receptor type delta (PTPRD) is associated with increased susceptibility to type 2 diabetes (T2D) in Han Chinese. A replication study indicated that PTPRD is involved in the insulin signaling pathway; however, the underlying mechanism remains unclear. We evaluated PTPRD expression in patients with T2D and controls. PTPRD expression levels were lower in patients and were correlated with the duration of the disease. Overexpression of the human insulin receptor PPARγ2 in HepG2 cells induced overexpression of PTPRD and the insulin receptor. PTPRD knockdown, using a shRNA, resulted in down-regulation of the insulin receptor. These results indicate that PTPRD activates PPARγ2 in the insulin signaling pathway. Similar results for PTPRD expression were found using a T2D mouse model. Silencing of PTPRD was caused by DNA methylation in T2D mice and patients, and correlated with DNMT1 expression. Furthermore, we showed that a DNMT1 SNP (rs78789647) was correlated with susceptibility to T2D. This study shows for the first time that DNMT1 caused PTPRD DNA hypermethylation and induced insulin signaling silencing in T2D patients. Our findings contribute to a better understanding of the crucial roles of these regulatory elements in human T2D.