Aims/hypothesis Current genetic tests for diagnosing monogenic diabetes rely on selection of the appropriate gene for analysis according to the patient’s phenotype. Next-generation sequencing enables the simultaneous analysis of multiple genes in a single test. Our aim was to develop a targeted next-generation sequencing assay to detect mutations in all known MODY and neonatal diabetes genes. Methods We selected 29 genes in which mutations have been reported to cause neonatal diabetes, MODY, maternally inherited diabetes and deafness (MIDD) or familial partial lipodystrophy (FPLD). An exon-capture assay was designed to include coding regions and splice sites. A total of 114 patient samples were tested—32 with known mutations and 82 previously tested for MODY (n = 33) or neonatal diabetes (n = 49) but in whom a mutation had not been found. Sequence data were analysed for the presence of base substitutions, small insertions or deletions (indels) and exonic deletions or duplications. Results In the 32 positive controls we detected all previously identified variants (34 mutations and 36 polymorphisms), including 55 base substitutions, ten small insertions or deletions and five partial/whole gene deletions/duplications. Previously unidentified mutations were found in five patients with MODY (15%) and nine with neonatal diabetes (18%). Most of these patients (12/14) had mutations in genes that had not previously been tested. Conclusions/interpretation Our novel targeted next-generation sequencing assay provides a highly sensitive method for simultaneous analysis of all monogenic diabetes genes. This single test can detect mutations previously identified by Sanger sequencing or multiplex ligation-dependent probe amplification dosage analysis. The increased number of genes tested led to a higher mutation detection rate. Electronic supplementary material The online version of this article (doi:10.1007/s00125-013-2962-5) contains peer-reviewed but unedited supplementary material, which is available to authorised users.