Type 2 diabetes (T2D) is characterized by islet β-cell dysfunction and impaired suppression of glucagon secretion of α-cells in response to oral hyperglycaemia. Bile acid (BA) metabolism plays a dominant role in maintaining glucose homeostasis. So we evaluated the association of fasting serum total bile acids (S-TBAs) with insulin sensitivity, islet β-cell function and glucagon levels in T2D. Total 2,952 T2D patients with fasting S-TBAs in the normal range were recruited and received oral glucose tolerance tests for determination of fasting and postchallenge glucose, C-peptide and glucagon. Fasting and systemic insulin sensitivity were assessed by homeostasis model assessment (HOMA) and Matsuda index using Cpeptide, i.e., IS HOMA-cp and ISI M-cp , respectively. Islet β-cell function was assessed by the insulin-secretion-sensitivity-index-2 using C-peptide (ISSI2 cp ). The area under the glucagon curve (AUC gla ) was used to assess postchallenge glucagon. The results showed IS HOMA-cp , ISI M-cp and ISSI2 cp decreased, while AUC gla notably increased, across ascending quartiles of S-TBAs but not fasting glucagon. Moreover, S-TBAs were inversely correlated with IS HOMA-cp , ISI M-cp and ISSI2 cp (r = -0.21, -0.15 and -0.25, respectively, p < 0.001) and positively correlated with AUC gla (r = 0.32, p < 0.001) but not with fasting glucagon (r = 0.033, p = 0.070). Furthermore, after adjusting for other clinical covariates by multiple linear regression analyses, the S-TBAs were independently associated with IS HOMA-cp (β = -0.04, t = -2.82, p = 0.005), ISI M-cp (β = -0.11, t = -7.05, p < 0.001), ISSI2 cp (β = -0.15, t = -10.26, p < 0.001) and AUC gla (β = 0.29, t = 19.08, p < 0.001). Increased fasting S-TBAs are associated with blunted fasting and systemic insulin sensitivity, impaired islet β-cell function and increased glucagon levels in response to glucose challenge in T2D.