TCF7L2 genetic variants were associated with progression to type 2 diabetes in Europeans. However, the role of TCF7L2 in type 2 diabetes remained uncertain in Chinese. Seventeen tag single nucleotide polymorphisms were genotyped in 1,094 subjects of Chinese origin from the Stanford Asia-Pacific Program for Hypertension and Insulin Resistance family study. At baseline, the rs7903146 T allele in the exon 4 linkage disequilibrium (LD) block were associated with lower insulinogenic index at 60 min ( P  = 0.01), while the rs290481 G allele near the 3′ end was associated with higher 2-h post-challenge glucose ( P  = 0.003) and insulin concentration ( P  = 0.02), elevated systolic ( P  = 0.01) and diastolic blood pressure ( P  = 0.006), lower waist circumference ( P  = 0.01), and increased steady-state plasma glucose (SSPG) concentration measured with modified insulin suppression test ( P  = 0.02). Over an average follow-up period of 5.43 years, participants with the rs7903146 T allele or variants in the same LD block, but not those with the rs290481 G allele, were more likely to progress to diabetes (hazard ratio = 2.61, 95% confidence interval, 1.27–5.39, P  = 0.009) than were non-carriers. TCF7L2 gene expression was inversely associated with SSPG in human visceral ( r  = −0.73, P  = 0.006) and subcutaneous adipose tissue ( r  = −0.62, P  = 0.03). TCF7L2 may exert pleiotropic effects on insulin secretion or insulin resistance. However, only variants associated with impaired β-cell function predict progression to diabetes in Chinese.