Nonalcoholic fatty liver disease (NAFLD) is a common chronic liver disease ranging in severity from steatosis to cirrhosis. Type 2 diabetes mellitus is a cause of primary NAFLD. Thiazolidinediones have been shown to enhance insulin sensitivity, improve glycemic control in type 2 diabetes patients and to improve the histologic markers of nonalcoholic steatohepatitis. This study aims to determine the safety and effectiveness of rosiglitazone in inadequately controlled type 2 diabetes patients with NAFLD. Methods: Taiwanese type 2 diabetes patients with inadequate control on insulin secretagogues and metformin, with no history of significant alcohol ingestion, with mildly elevated serum aspartate amino-transferase (AST) and/or alanine aminotransferase (ALT) and a diagnosis of fatty liver determined by ultrasonography were enrolled. Patients were treated for 24 weeks with rosiglitazone, 4-8 mg daily. Primary endpoints were change in AST and ALT levels from baseline and reduction in A1C < 6.5%. Results: Out of a total of 68 patients, 60 (88.2%) completed the study treatment without serious adverse events. Treatment in two (2.9%) patients was discontinued due to elevated AST or ALT levels to more than three times the upper limit of normal, and noncompliance or loss of follow-up in six (8.8%) patients. Of the 60 patients who completed the study treatment, mean fasting plasma glucose, A1C, fasting plasma insulin, mean ALT and homeostasis model assessment for insulin resistance were all significantly reduced. Normal AST and ALT levels were achieved and maintained for at least three consecutive measurements and through to the end of the study period in 20 (33.3%) patients. Weight increased by a mean of 2.6 ± 2.4 kg (p<0.001). Conclusion: Rosiglitazone was reasonably well tolerated in patients with inadequately controlled type 2 diabetes and NAFLD. One-third of patients showed improved liver function after treatment.