Abstract Aims/hypothesis We examined the contribution of rare HNF1A variants to type 2 diabetes risk and age of diagnosis, and the extent to which their impact is affected by overall genetic susceptibility, across three ancestry groups. Methods Using exome sequencing data of 160,615 individuals of the UK Biobank and 18,797 individuals of the BioMe Biobank, we identified 746 carriers of rare functional HNF1A variants (minor allele frequency ≤1%), of which 507 carry variants in the functional domains. We calculated polygenic risk scores (PRSs) based on genome-wide association study summary statistics for type 2 diabetes, and examined the association of HNF1A variants and PRS with risk of type 2 diabetes and age of diagnosis. We also tested whether the PRS affects the association between HNF1A variants and type 2 diabetes risk by including an interaction term. Results Rare HNF1A variants that are predicted to impair protein function are associated with increased risk of type 2 diabetes in individuals of European ancestry (OR 1.46, p=0.049), particularly when the variants are located in the functional domains (OR 1.89, p=0.002). No association was observed for individuals of African ancestry (OR 1.10, p=0.60) or Hispanic-Latino ancestry (OR 1.00, p=1.00). Rare functional HNF1A variants were associated with an earlier age at diagnosis in the Hispanic-Latino population (β=−5.0 years, p=0.03), and this association was marginally more pronounced for variants in the functional domains (β=−5.59 years, p=0.03). No associations were observed for other ancestries (African ancestry β=−2.7 years, p=0.13; European ancestry β=−3.5 years, p=0.20). A higher PRS was associated with increased odds of type 2 diabetes in all ancestries (OR 1.61–2.11, p<10⁻⁵) and an earlier age at diagnosis in individuals of African ancestry (β=−1.4 years, p=3.7 × 10⁻⁶) and Hispanic-Latino ancestry (β=−2.4 years, p<2 × 10⁻¹⁶). Furthermore, a higher PRS exacerbated the effect of the functional HNF1A variants on type 2 diabetes in the European ancestry population (p_interaction=0.037). Conclusions/interpretation We show that rare functional HNF1A variants, in particular those located in the functional domains, increase the risk of type 2 diabetes, at least among individuals of European ancestry. Their effect is even more pronounced in individuals with a high polygenic susceptibility. Our analyses highlight the importance of the location of functional variants within a gene and an individual’s overall polygenic susceptibility, and emphasise the need for more genetic data in non-European populations. Graphical abstract