OBJECTIVE Recent studies suggest that air pollution plays a role in type 2 diabetes (T2D) incidence and mortality. The underlying physiological mechanisms have yet to be established. We hypothesized that air pollution adversely affects insulin sensitivity and secretion and serum lipid levels. RESEARCH DESIGN AND METHODS Participants were selected from BetaGene (n = 1,023), a study of insulin resistance and pancreatic β-cell function in Mexican Americans. All participants underwent DXA and oral and intravenous glucose tolerance tests and completed dietary and physical activity questionnaires. Ambient air pollutant concentrations (NO2, O3, and PM2.5) for short- and long-term periods were assigned by spatial interpolation (maximum interpolation radius of 50 km) of data from air quality monitors. Traffic-related air pollution from freeways (TRAP) was estimated using the dispersion model as NOx. Variance component models were used to analyze individual and multiple air pollutant associations with metabolic traits. RESULTS Short-term (up to 58 days cumulative lagged averages) exposure to PM2.5 was associated with lower insulin sensitivity and HDL-to-LDL cholesterol ratio and higher fasting glucose and insulin, HOMA-IR, total cholesterol, and LDL cholesterol (LDL-C) (all P ≤ 0.036). Annual average PM2.5 was associated with higher fasting glucose, HOMA-IR, and LDL-C (P ≤ 0.043). The effects of short-term PM2.5 exposure on insulin sensitivity were largest among obese participants. No statistically significant associations were found between TRAP and metabolic outcomes. CONCLUSIONS Exposure to ambient air pollutants adversely affects glucose tolerance, insulin sensitivity, and blood lipid concentrations. Our findings suggest that ambient air pollutants may contribute to the pathophysiology in the development of T2D and related sequelae.