Nonalcoholic fatty liver disease (NAFLD) is associated with increased risk of hepatic, cardiovascular, and metabolic diseases. High-protein diets, rich in methionine and branched chain amino acids (BCAAs), apparently reduce liver fat, but can induce insulin resistance. We investigated the effects of diets high in animal protein (AP) vs plant protein (PP), which differ in levels of methionine and BCAAs, in patients with type 2 diabetes and NAFLD. We examined levels of liver fat, lipogenic indices, markers of inflammation, serum levels of fibroblast growth factor 21 (FGF21), and activation of signaling pathways in adipose tissue. We performed a prospective study of individuals with type 2 diabetes and NAFLD at a tertiary medical center in Germany from June 2013 through March 2015. We analyzed data from 37 subjects placed on a diet high in AP (rich in meat and dairy foods; n= 18) or PP (mainly legume protein; n= 19) without calorie restriction for 6 weeks. The diets were isocaloric with the same macronutrient composition (30% protein, 40% carbohydrates, and 30% fat). Participants were examined at the start of the study and after the 6-week diet period for body mass index, body composition, hip circumference, resting energy expenditure, and respiratory quotient. Body fat and intrahepatic fat were detected by magnetic resonance imaging and spectroscopy, respectively. Levels of glucose, insulin, liver enzymes, and inflammation markers, as well as individual free fatty acids and free amino acids, were measured in collected blood samples. Hyperinsulinemic euglycemic clamps were performed to determine whole-body insulin sensitivity. Subcutaneous adipose tissue samples were collected and analyzed for gene expression patterns and phosphorylation of signaling proteins. Postprandial levels of BCAAs and methionine were significantly higher in subjects on the AP vs the PP diet. The AP and PP diets each reduced liver fat by 36%-48% within 6 weeks (for AP diet P= .0002; for PP diet P= .001). These reductions were unrelated to change in body weight, but correlated with down-regulation of lipolysis and lipogenic indices. Serum level of FGF21 decreased by 50% in each group (for AP diet P < .0002; for PP diet P < .0002); decrease in FGF21 correlated with loss of hepatic fat. In gene expression analyses of adipose tissue, expression of the FGF21 receptor cofactor β-klotho was associated with reduced expression of genes encoding lipolytic and lipogenic proteins. In patients on each diet, levels of hepatic enzymes and markers of inflammation decreased, insulin sensitivity increased, and serum level of keratin 18 decreased. In a prospective study of patients with type 2 diabetes, we found diets high in protein (either animal or plant) significantly reduced liver fat independently of body weight, and reduced markers of insulin resistance and hepatic necroinflammation. The diets appear to mediate these changes via lipolytic and lipogenic pathways in adipose tissue. Negative effects of BCAA or methionine were not detectable. FGF21 level appears to be a marker of metabolic improvement. ClinicalTrials.gov ID NCT02402985.