The fetal insulin hypothesis proposes that low birth weight and susceptibility to type 2 diabetes (T2D) could both be two phenotypes of the same genotype. Insulin is a key growth factor in utero, and T2D is characterized by insulin resistance and/or beta-cell dysfunction. Therefore, genetic variants impacting on insulin secretion and action are likely to alter both fetal growth and susceptibility to T2D. There are three lines of evidence in support of this hypothesis. (1) Studies of rare monogenic diabetes have shown mutations in a single gene, such as GCK or KCNJ11, can cause diabetes by reducing insulin secretion, and these mutations are also associated with reduced birth weight. (2) Epidemiological studies have indicated that children born to fathers with diabetes are born smaller. As the father cannot influence the intrauterine environment, this association is likely to reflect genes inherited by the fetus from the father. (3) The most compelling evidence comes from recent genome-wide association studies. Variants in the CDKAL1 and HHEX-IDE genes that predispose to diabetes, if present in the fetus, are associated with reduced birth weight. These data provide evidence for a genetic contribution to the association between low birth weight and susceptibility to T2D. This genetic background is important to take into consideration when investigating the impact of environmental determinants and developing strategies for intervention and prevention.