The hepatokine follistatin is elevated in patients with type 2 diabetes (T2D) and promotes hyperglycemia in mice. Here we explore the relationship of plasma follistatin levels with incident T2D and mechanisms involved. Adjusted hazard ratio (HR) per standard deviation (SD) increase in follistatin levels for T2D is 1.24 (CI: 1.04–1.47, p < 0.05) during 19-year follow-up (n = 4060, Sweden); and 1.31 (CI: 1.09–1.58, p < 0.01) during 4-year follow-up (n = 883, Finland). High circulating follistatin associates with adipose tissue insulin resistance and non-alcoholic fatty liver disease (n = 210, Germany). In human adipocytes, follistatin dose-dependently increases free fatty acid release. In genome-wide association study (GWAS), variation in the glucokinase regulatory protein gene (GCKR) associates with plasma follistatin levels (n = 4239, Sweden; n = 885, UK, Italy and Sweden) and GCKR regulates follistatin secretion in hepatocytes in vitro. Our findings suggest that GCKR regulates follistatin secretion and that elevated circulating follistatin associates with an increased risk of T2D by inducing adipose tissue insulin resistance.