BACKGROUND & AIMS: Improvement of fatty liver may be required for remission of type-2 diabetes. However, there is no longitudinal evidence on whether fatty liver reduces the chances for remission of type-2 diabetes. We investigated the association between fatty liver and remission of type-2 diabetes (the primary analysis), and also the association between improvement of fatty liver and remission of type-2 diabetes (the secondary analysis). METHODS: We collected data from 66961 people who underwent screening for type-2 diabetes from 2008 through 2016 at a single center in Japan. The primary analysis included 2567 patients with type-2 diabetes without chronic renal failure or a history of hemodialysis who underwent ultrasonography to detect fatty liver, all of whom had follow-up testing, including blood testing, for a median 24.5 months after the baseline ultrasonography. The secondary analysis included 1833 participants with fatty liver at baseline who underwent a second ultrasonography, and participants who had fatty liver at baseline but not at the second visit were considered to have had improvement of fatty liver. Remission of type-2 diabetes was defined as a fasting plasma glucose level below 126 mg/dL and an HbA1c level below 6.5% for more than 6 months without anti-diabetic drugs. Odds ratios (ORs) of remission of type-2 diabetes were estimated using logistic-regression models. RESULTS: A lower proportion of patients who had fatty liver detected by ultrasonography at baseline (8.7%, 167/1910) had remission of type-2 diabetes during the follow-up period than patients without fatty liver (13.1%, 86/657). Fatty liver at baseline was associated with a lower odds of remission of type-2 diabetes (multivariable-adjusted OR, 0.51; 95% CI, 0.37-0.72). A higher proportion of patients who had improvement of fatty liver had remission of type-2 diabetes (21.1%, 32/152) than patients with no improvement of fatty liver (7.7%, 129/1681). Improvement of fatty liver was associated with a higher odds of remission of type-2 diabetes (multivariable-adjusted OR, 3.08; 95% CI, 1.94-4.88). CONCLUSIONS: Over a follow-up period of approximate 2 years, remission of type-2 diabetes was less common in people with fatty liver detected by ultrasonography, and improvement of fatty liver was independently associated with type-2 diabetes remission.