Prostaglandins are potent modulators of insulin sensitivity. We systemically evaluated the association of 61 tag single-nucleotide polymorphisms (SNP) in 14 genes involved in prostaglandin metabolism with type 2 diabetes. Among all genotyped SNPs, rs10483032 in the CBR3 (carbonyl reductase 3) gene, which encodes for an enzyme converting prostaglandin E(2) to prostaglandin F2(α), was associated with type 2 diabetes in 760 type 2 diabetic cases and 760 controls (stage-1 study) (P = 2.0 × 10(-4)). The association was validated in 1,615 cases and 1,162 controls (stage-2 study) (P = 0.009). The A allele at rs10483032 was associated with increased risk of type 2 diabetes (odds ratio = 1.29; 95% confidence interval = 1.14-1.47; combined P < 0.0001). The association was externally validated in the Finland-United States Investigation of NIDDM Genetics (FUSION) study (P = 3.7 × 10(-4)). The risk A allele was associated with higher homeostasis model assessment of insulin resistance (HOMA-IR) in 1,012 non-diabetic controls and 1,138 non-diabetic subjects from the Stanford Asia-Pacific Program for Hypertension and Insulin Resistance (SAPPHIRe) family study. CBR3 gene expression in human abdominal adipose tissue was negatively associated with fasting insulin and HOMA-IR. CBR3 gene expression increased during differentiation of 3T3-L1 preadipocytes into adipocytes. Knockdown of CBR3 in 3T3-L1 preadipocytes enhanced adipogenesis and peroxisome proliferator-activator receptor-γ response element reporter activity. Our results indicated that genetic polymorphism in the CBR3 gene conferred risk of type 2 diabetes and insulin resistance in Chinese. The association was probably mediated through modulation of adipogenesis.