Aims/hypothesis: Elevated serum ferritin levels are associated with an increased risk of type 2 diabetes, but the nature of this association remains elusive. The aim of this study was to test the hypothesis that an elevated fasting serum ferritin level is associated with an increased risk of type 2 diabetes due to its association with impaired beta cell function and decreased insulin sensitivity. Methods: We investigated 6,392 individuals from the Danish general population. Surrogate measures of beta cell function and insulin sensitivity were calculated for approximately 6,100 individuals based on OGTT examinations. Results: The ORs for type 2 diabetes were 4.2 (95% CI 2.4, 7.2) for the highest vs the lowest quintile of serum ferritin, and 17 (95% CI 8.9, 33) for serum ferritin levels ≥97.5th percentile vs <20th percentile. Elevated serum ferritin levels were associated with elevated plasma glucose levels at 0, 30 and 120 min (p < 0.001), elevated serum insulin levels at 0 and 120 min (p = 0.02 and p < 0.001), decreased beta cell function estimated as the insulinogenic index and corrected insulin response (p < 0.001), and decreased insulin sensitivity estimated by the Matsuda index of insulin sensitivity and HOMA-IR (p < 0.001). Whereas the association with impaired beta cell function was present in both men and women, the association with decreased insulin sensitivity was observed among men and older women but not among younger women. Conclusions/interpretation: Elevated fasting serum ferritin levels are associated with surrogate measures of both impaired beta cell function and decreased insulin sensitivity. Menopause seems to modify the association with insulin sensitivity.