An association between diabetes and chronic liver disease has been reported. However, the temporal relationship between these conditions remains unknown. We identified all patients with a hospital discharge diagnosis of diabetes between 1985 and 1990 using the computerized records of the Department of Veterans Affairs. We randomly assigned 3 patients without diabetes for every patient with diabetes. We excluded patients with concomitant liver disease. The remaining cohort was followed through 2000 for the occurrence of chronic nonalcoholic liver disease (CNLD) and hepatocellular carcinoma (HCC). Hazard rate ratios (HRR) were determined in Cox proportional hazard survival analysis. The study cohort comprised 173,643 patients with diabetes and 650,620 patients without diabetes. Most were men (98%). Patients with diabetes were older (62 vs. 54 years) than patients without diabetes. The incidence of chronic nonalcoholic liver disease was significantly higher among patients with diabetes (incidence rate: 18.13 vs. 9.55 per 10,000 person-years, respectively, P < 0.0001). Similar results were obtained for HCC (incidence rate: 2.39 vs. 0.87 per 10,000 person-years, respectively, P < 0.0001). Diabetes was associated with an HRR of 1.98 (95% CI: 1.88 to 2.09, P < 0.0001) of CNLD and an HRR of 2.16 (1.86 to 2.52, P < 0.0001) of hepatocellular carcinoma. Diabetes carried the highest risk among patients with longer than 10 years of follow-up. Among men with diabetes, the risk of CNLD and HCC is doubled. This increase in risk is independent of alcoholic liver disease, viral hepatitis, or demographic features.