To uncover novel targets for the treatment of type 2 diabetes (T2D) by investigating rare variants with large effects in monogenic forms of the disease. We performed whole-exome sequencing in a family with diabetes. We validated the identified gene using Sanger sequencing in additional families and diabetes- and community-based cohorts. Wild-type and variant gene transgenic mouse models were used to study the gene function. Our analysis revealed a rare variant of the metallothionein 1E (MT1E) gene, p.C36Y, in a three-generation family with diabetes. This risk allele was associated with T2D or prediabetes in a community-based cohort. MT1E p.C36 carriers had higher HbA1c levels and greater BMI than those carrying the wild-type allele. Mice with forced expression of MT1E p.C36Y demonstrated increased weight gain, elevated postchallenge serum glucose and liver enzyme levels, and hepatic steatosis, similar to the phenotypes observed in human carriers of MT1E p.C36Y. In contrast, mice with forced expression of MT1E p.C36C displayed reduced weight and lower serum glucose and serum triglyceride levels. Forced expression of wild-type and variant MT1E demonstrated differential expression of genes related to lipid metabolism. Our results suggest that MT1E could be a promising target for drug development, because forced expression of MT1E p.C36C stabilized glucose metabolism and reduced body weight, whereas MT1E p.C36Y expression had the opposite effect. These findings highlight the importance of considering the impact of rare variants in the development of new T2D treatments.