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Only a few studies have evaluated the long-term effects of nonalcoholic fatty liver disease (NAFLD) on type 2 diabetes mellitus (T2DM), and none have examined whether NAFLD improvement reduces T2DM incidence. We investigated the association between NAFLD improvement and T2DM incidence.Between 2000 and 2012, 4,604 participants who underwent a health check twice with >10 years between were enrolled. Exclusion criteria were positive hepatitis B surface antigen, positive hepatitis C antibody, ethanol intake >20 g/day, and diabetes. The 3,074 eligible participants were divided into an NAFLD group (n = 728) and a non-NAFLD group (n = 2,346) according to ultrasonography-detected fatty liver. The NAFLD group was categorized into an improved group (n = 110) and a sustained NAFLD group (n = 618) based on fatty liver disappearance at the second visit. Incident T2DM odds ratios (ORs) were estimated by logistic regression models adjusted for age, sex, BMI, impaired fasting glucose, family history of diabetes, dyslipidemia, hypertension, and physical exercise.T2DM occurred in 117 participants (16.1%) in the NAFLD group and 72 (3.1%) in the non-NAFLD group. NAFLD at baseline was associated with T2DM incidence (multivariate OR 2.37 [95% CI 1.60–3.52]). T2DM occurred in 7 participants (6.4%) in the improved group and in 110 (17.8%) in the sustained NAFLD group. NAFLD improvement was associated with reduced T2DM incidence (multivariate OR 0.27 [95% CI 0.12–0.61]).NAFLD improvement is associated with T2DM incidence reduction.