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INTRODUCTION: Both fatty liver disease (FLD) and alcohol consumption have been reported to affect incident type 2 diabetes mellitus. The aim of this study was to evaluate the combined effect of FLD and alcohol consumption on incident type 2 diabetes. RESEARCH DESIGN AND METHODS: In this historical cohort study involving 9948 men, we investigated the influence of the presence of FLD and the grades of alcohol consumption on incident type 2 diabetes using Cox proportional hazards models. We categorized the participants into the following four groups: none or minimal alcohol consumption, <40 g/week; light, 40-140 g/week; moderate, 140-280 g/week; or heavy alcohol consumption, >280 g/week. FLD was diagnosed by abdominal ultrasonography. RESULTS: During the median 6.0-year follow-up, 568 participants developed type 2 diabetes. Heavy alcohol consumers with FLD showed a higher risk for developing type 2 diabetes compared with the other groups. Moderate alcohol consumers without FLD had a significantly higher risk for developing incident type 2 diabetes, compared with none or minimal and light alcohol consumers without FLD. In contrast, there was no apparent difference in the risk for incident type 2 diabetes between none or minimal, light, and moderate alcohol consumers with FLD. Furthermore, there was no statistically significant difference in the risk for incident type 2 diabetes between a moderate and heavy alcohol consumer without FLD and a none or minimal, light, and moderate alcohol consumer with FLD. CONCLUSIONS: To prevent incident type 2 diabetes, we should acknowledge that the impact of alcohol consumption may vary in the presence of FLD.