The fatty liver index (FLI), calculated from serum triglyceride, body mass index, waist circumference, and gamma-glutamyltransferase, is considered a surrogate marker of nonalcoholic fatty liver disease (NAFLD). We investigated whether FLI predicts the development of diabetes mellitus (DM) and assessed the predictive ability of FLI for new onset of DM in a prospective population-based cohort study.We analyzed a total of 2784 adults (944 men and 1840 women) aged 40 to 70 years without DM at baseline. Participants were classified according to FLI values into 3 groups: FLI < 30, no NAFLD; 30 ≤ FLI ≤ 59, intermediate NAFLD; and FLI ≥ 60, participants with NAFLD. The area under the receiver-operating characteristic curve (AUC), net reclassification improvement (NRI), and integrated discrimination improvement (IDI) were calculated to determine whether FLI improved DM risk prediction.During a mean of 2.6 years follow-up, 88 (3.16%) participants developed DM. The odds ratio analyzed from multivariable-adjusted models (95% confidence interval [CI]) for new onset of DM increased in a continuous manner with increased FLI (<30 vs 30-59 vs ≥60 = 1 vs 1.87 [95% CI 1.05-3.33] vs 2.84 [95% CI 1.4-5.75], respectively). The AUC significantly increased when FLI was added to the conventional DM prediction model (0.835, 95% CI: 0.789-0.881, P = 0.0289 vs traditional DM prediction model). The category-free NRI was 0.417 (95% CI: 0.199-0.635) and the IDI was 0.015 (95% CI: 0.003-0.026) for overall study participants.We found that FLI, a surrogate marker of hepatic steatosis, resulted in significant improvement in DM risk prediction. Our finding suggests that FLI may have clinical and prognostic information for incident DM among the Korean adult population.