Islet dysfunction is central to the development and progression of type 2 diabetes (T2D). Epigenetic modifications are essential for establishing and maintaining cell identity and function in normal circumstances. Exposure to adverse environmental factors may alter the epigenome, and result in changes of gene expression and the resulting phenotype. The aim of this thesis was to analyze DNA methylation levels of specific genes, as well as genome-wide DNA methylation, in order to determine whether epigenetic dysregulation of pancreatic islets contributes to islet dysfunction in subjects with T2D. We also assessed the relationship between genetic variation and DNA methylation. We further examined the potential use of DNA methylation in blood DNA to predict future T2D. At the specific gene level, we found that DNA methylation of INS and PDX-1 was increased in pancreatic islets from subjects with T2D (Studies I and II). Conversely, their mRNA expression, insulin content and glucose-stimulated insulin secretion (GSIS) were decreased in the same islets. We next analyzed genome-wide DNA methylation in human pancreatic islets from both T2D and non-diabetic donors (Study III). Nearly 1,500 CpG sites (853 genes) were differentially methylated in T2D islets, with the majority showing decreased DNA methylation. 102 genes showed both altered DNA methylation and mRNA expression in T2D islets, including CDKN1A, PDE7B, SEPT9 and EXOC3L2. Our functional experiments provided further evidence that altering the expression of these genes, by modeling the situation in T2D, results in impaired insulin and glucagon secretion in cell line models. Furthermore, we showed that nearly half of the single nucleotide polymorphisms (SNPs) associated with T2D are CpG-SNPs, which can introduce or remove a CpG site (Study IV). Accordingly, we found that the degree of DNA methylation at CpG-SNP sites varied between individuals with different genotypes, and that some of the CpG-SNPs were associated with differential gene expression, alternative splicing and hormonal secretion. In Study V, we showed that altered DNA methylation at two CpG sites in the ABCG1 and PHOSPHO1 genes in blood from non-diabetic individuals was associated with a higher risk of future T2D. Subsequently, we found that CpG sites annotated to these genes were differentially methylated in T2D target tissues. Taken together, our findings suggest that epigenetic dysregulation of pancreatic islets play a role in islet dysfunction in subjects with T2D, and can be influenced by genetic variation and the environment