Pre-B cell leukemia transcription factor 1 (PBX1) encodes a homeodomain containing protein that is essential for pancreatic development and interacts with insulin promoter factor 1 to regulate insulin secretion. PBX1 maps to chromosome 1q22, a region with replicated linkage to type 2 diabetes (T2DM). We screened for sequence variation in nine exons, intronic regions flanking the exons, the 3' untranslated region (3' UTR), as well as 1-kb upstream of exon 1 in 16 Caucasians and 16 African American individuals with T2DM. We evaluated 18 variants including the nonsynonymous substitution G21S in exon 1, one 4 bp insertion/deletion, and one 7 bp insertion/deletion. We typed 10 variants on the basis of frequency and linkage disequilibrium patterns unrelated Caucasian subjects with T2DM and controls, and nine common variants in 129 Caucasian individuals for whom we had detailed assessments of insulin action and insulin secretion. We typed four common variants in African Americans individuals and additional SNPs in pooled DNA samples from both populations. No coding variant was associated with diabetes and no association was found among African American subjects. However, three variants in Caucasians (78287, 91227, and 252050 bp) were associated with T2DM (p<0.05), as were four marker haplotypes that included intron 2 variants. Additionally, three variants including G21S (61 bp) and the diabetes associated SNP at 78287 were significant determinants of insulin sensitivity (S(I)) in interaction with body mass index (p<0.02). Sequence variants in different locations of the PBX1 gene may have modest pleiotropic effects on T2DM susceptibility in Caucasians.