Accumulating evidence indicates the association between obesity and lung function. However, no previous study has examined whether obesity affects lung function in normal weight participants with high body fat. We hypothesized that subjects with normal weight obesity (NWO) were inversely associated with lung function in Taiwan. The study sample was composed of participants who attended health examinations at the Tri-Service General Hospital from 2010 to 2016. A total of 7801 eligible participants who were classified as NWO were divided into quartiles by percentage body fat (PBF), which was measured by bioelectrical impedance analysis (BIA). A multivariable linear regression was performed to assess the association between PBF quartiles and pulmonary function. The relationship between PBF and the presence of obstructive and restrictive lung diseases was analyzed by a logistic regression. PBF quartiles were closely associated with reduced forced expiratory volume in one second (FEV1) and forced vital capacity (FVC) in all adjusted models. This relationship remained significant in the male population, and a dose-dependent effect was observed. Increased PBF was associated with increased risks for the presence of restrictive lung diseases. These results presented a novel finding that body fat exhibited an inverse association with pulmonary function in NWO subjects. More comprehensive management of subjects with normal weight but high body fat, which might contribute to metabolic dysfunction and impaired pulmonary function, is needed.