Fatty liver disease and metabolic syndrome (MetS) are both shown to increase the risk of type 2 diabetes. The aim of this study was to investigate the combined effect of fatty liver and MetS on incident diabetes. In this cohort study of 17,810 participants, fatty liver was diagnosed by abdominal ultrasonography and MetS was defined by a joint interim statement. We divided the participants into four groups according to the presence of fatty liver and/or MetS. Type 2 diabetes was defined as HbA1c ≥6.5%, fasting plasma glucose ≥7.0 mmol/L or treatment for diabetes. During the follow up examination (median 5.1 years), 804 participants developed diabetes. Compared with non-MetS without fatty liver, hazard ratios (HR) for incident diabetes after adjusting for age, body mass index, smoking status, exercise habit, alcohol consumption, family history of diabetes logarithm of alanine aminotransferase and fasting plasma glucose, were as follow: 2.35 (95 % CI 1.91-2.89, p<0.001) in non-MetS with fatty liver, 1.70 (95% CI 1.30-2.20, p<0.001) in MetS without fatty liver, and 2.33 (95% CI 1.85-2.94, p<0.001) in MetS with fatty liver. In addition, adjusted HRs for incident diabetes compared with MetS without fatty liver were 1.39 (95% CI 1.07-1.80, p=0.012) in non-MetS with fatty liver and 1.38 (95% CI 1.07-1.79, p=0.013) in MetS with fatty liver. Fatty liver affects more on the risk of incident diabetes than MetS. To prevent the further risk of diabetes, we should pay more attention to fatty liver.