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Genetic fine mapping and genomic annotation defines causal mechanisms at type 2 diabetes susceptibility loci.We performed fine mapping of 39 established type 2 diabetes (T2D) loci in 27,206 cases and 57,574 controls of European ancestry. We identified 49 distinct association signals at these loci, including five mapping in or near KCNQ1. 'Credible sets' of the variants most likely to drive each distinct signal mapped predominantly to noncoding sequence, implying that association with T2D is mediated through gene regulation. Credible set variants were enriched for overlap with FOXA2 chromatin immunoprecipitation binding sites in human islet and liver cells, including at MTNR1B, where fine mapping implicated rs10830963 as driving T2D association. We confirmed that the T2D risk allele for this SNP increases FOXA2-bound enhancer activity in islet- and liver-derived cells. We observed allele-specific differences in NEUROD1 binding in islet-derived cells, consistent with evidence that the T2D risk allele increases islet MTNR1B expression. Our study demonstrates how integration of genetic and genomic information can define molecular mechanisms through which variants underlying association signals exert their effects on disease.