HNF1alpha (TCF1) is a key transcription factor that is essential for pancreatic beta-cell development and function. Rare mutations of HNF1alpha cause maturity-onset diabetes of the young. A common variant, G319S, private to the Oji-Cree population, predisposes to type 2 diabetes, but the role of common HNF1alpha variation in European populations has not been comprehensively assessed. We determined the linkage disequilibrium and haplotype structure across the HNF1alpha gene region using 29 single nucleotide polymorphisms (SNPs). Eight tagging SNPs (tSNPs) that efficiently capture common haplotypes and the amino acid-changing variant, A98V, were genotyped in 5,307 subjects (2,010 type 2 diabetic case subjects, 1,643 control subjects, and 1,654 members of 521 families). We did not find any evidence of association between the tSNPs or haplotypes and type 2 diabetes. We could exclude odds ratios (ORs) >1.25 for all tSNPs. The rare V98 allele (approximately 3% frequency) showed possible evidence of association with type 2 diabetes (OR 1.23 [95% CI 0.99-1.54], P = 0.07), a result that was supported by meta-analysis of this and published studies (OR 1.31 [1.08-1.59], P = 0.007). Further studies are required to investigate this association, demonstrating the difficulty of defining the role of rare (<5%) alleles in type 2 diabetes risk.