A major challenge in evaluating the contribution of rare variants to complex disease is identifying enough copies of the rare alleles to permit informative statistical analysis. To investigate the contribution of rare variants to the risk of type 2 diabetes (T2D) and related traits, we performed deep whole-genome analysis of 1,034 members of 20 large Mexican-American families with high prevalence of T2D. If rare variants of large effect accounted for much of the diabetes risk in these families, our experiment was powered to detect association. Using gene expression data on 21,677 transcripts for 643 pedigree members, we identified evidence for large-effect rare-variant -expression quantitative trait loci that could not be detected in population studies, validating our approach. However, we did not identify any rare variants of large effect associated with T2D, or the related traits of fasting glucose and insulin, suggesting that large-effect rare variants account for only a modest fraction of the genetic risk of these traits in this sample of families. Reliable identification of large-effect rare variants will require larger samples of extended pedigrees or different study designs that further enrich for such variants.