ABSTRACT Non-coding genetic variation at TCF7L2 is the strongest genetic determinant of type 2 diabetes (T2D) risk in humans. TCF7L2 encodes a transcription factor mediating the nuclear effects of WNT signalling in adipose tissue (AT). Here we mapped the expression of TCF7L2 in human AT and investigated its role in adipose progenitor (AP) biology. APs exhibited the highest TCF7L2 mRNA abundance compared to mature adipocytes and adipose-derived endothelial cells. Obesity was associated with reduced TCF7L2 transcript levels in subcutaneous abdominal AT but increased expression in APs. In functional studies, TCF7L2 knockdown (KD) in APs led to dose-dependent activation of WNT/β-catenin signaling, impaired proliferation and dose-dependent effects on adipogenesis. Whilst partial KD enhanced adipocyte differentiation, complete KD impaired lipid accumulation and adipogenic gene expression. Overexpression of TCF7L2 accelerated adipogenesis. Transcriptome-wide profiling revealed that TCF7L2 can modulate multiple aspects of AP biology including extracellular matrix secretion, immune signalling and apoptosis. The T2D-risk allele at rs7903146 was associated with reduced AP TCF7L2 expression and enhanced AT insulin sensitivity. Our study highlights a complex role for TCF7L2 in AP biology and suggests that in addition to regulating pancreatic insulin secretion, genetic variation at TCF7L2 may also influence T2D risk by modulating AP function.