Dairy consumption is linked to a lower risk of type 2 diabetes, but constituents responsible for this relation are not established. Emerging evidence suggests that trans-palmitoleate (trans 16:1n-7), a fatty acid in dairy and also partially hydrogenated oils, may be associated with a more favorable metabolic profile and less incident diabetes. We investigated the association of trans-palmitoleate with metabolic risk and incident diabetes in a multiethnic US cohort. Phospholipid fatty acids and metabolic risk factors were measured in 2000-2002 among 2617 adults in the Multi-Ethnic Study of Atherosclerosis (MESA), a cohort of white, black, Hispanic, and Chinese Americans. In 2281 participants free of baseline diabetes, we also prospectively assessed the risk of new-onset diabetes (205 cases) from baseline to 2005-2007. trans-Palmitoleate concentrations correlated positively with self-reported consumption of whole-fat dairy, butter, margarine, and baked desserts and with other circulating biomarkers of both dairy fat and partially hydrogenated oil consumption, which suggested mixed dietary sources. After multivariable adjustment, trans-palmitoleate concentrations were associated with higher LDL cholesterol (quintile 5 compared with quintile 1: +6.4%; P-trend = 0.005), lower triglycerides (-19.1%; P-trend < 0.001), lower fasting insulin (-9.1%; P-trend = 0.002), and lower systolic blood pressure (-2.4 mm Hg; P-trend = 0.01). In prospective analyses, trans-palmitoleate was independently associated with lower incident diabetes (P-trend = 0.02), including a 48% lower risk in quintile 5 compared with quintile 1 (HR: 0.52; 95% CI: 0.32, 0.85). All findings were similar between men and women and between different race-ethnic subgroups. Circulating trans-palmitoleate is associated with higher LDL cholesterol but also with lower triglycerides, fasting insulin, blood pressure, and incident diabetes in a multiethnic US cohort. Our findings support the need for further experimental and dietary intervention studies that target circulating trans-palmitoleate. The MESA trial was registered at clinicaltrials.gov as NCT00005487.