Aims/hypothesis Most type 2 diabetes-associated genetic variants identified via genome-wide association studies (GWASs) appear to act via the pancreatic islet. Observed defects in insulin secretion could result from an impact of these variants on islet development and/or the function of mature islets. Most functional studies have focused on the latter, given limitations regarding access to human fetal islet tissue. Capitalising upon advances in in vitro differentiation, we characterised the transcriptomes of human induced pluripotent stem cell (iPSC) lines differentiated along the pancreatic endocrine lineage, and explored the contribution of altered islet development to the pathogenesis of type 2 diabetes. Methods We performed whole-transcriptome RNA sequencing of human iPSC lines from three independent donors, at baseline and at seven subsequent stages during in vitro islet differentiation. Differentially expressed genes (q < 0.01, log 2 fold change [FC] > 1) were assigned to the stages at which they were most markedly upregulated. We used these data to characterise upstream transcription factors directing different stages of development, and to explore the relationship between RNA expression profiles and genes mapping to type 2 diabetes GWAS signals.Results We identified 9409 differentially expressed genes across all stages, including many known markers of islet development. Integration of differential expression data with information on transcription factor motifs highlighted the potential contribution of REST to islet development. Over 70% of genes mapping within type 2 diabetes-associated credible intervals showed peak differential expression during islet development, and type 2 diabetes GWAS loci of largest effect (including TCF7L2; log 2 FC = 1.2; q = 8.5 × 10 −10 ) were notably enriched in genes differentially expressed at the posterior foregut stage (q = 0.002), as calculated by gene set enrichment analyses. In a complementary analysis of enrichment, genes differentially expressed in the final, beta-like cell stage of in vitro differentiation were significantly enriched (hypergeometric test, permuted p value <0.05) for genes within the credible intervals of type 2 diabetes GWAS loci. Conclusions/interpretation The present study characterises RNA expression profiles during human islet differentiation, identifies potential transcriptional regulators of the differentiation process, and suggests that the inherited predisposition to type 2 diabetes is partly mediated through modulation of islet development.Marta Perez-Alcantara and Christian Honoré contributed equally to this study.Electronic supplementary material The online version of this article (https://doi.org/10.1007/s00125-018-4612-4) contains peer-reviewed but unedited supplementary material, which is available to authorised users.