Objective of the present study is to determine the association of fatty pancreas and diabetes in Nepal. It is a hospital-based study carried out using data retrieved from the register maintained in the Kathmandu Valley Hospital between 1st December, 2012 and 31st May, 2013. The variables collected were age, gender, HbA1c, serum creatinine, fasting blood glucose. The fatty pancreas still remained positively associated with diabetes (OR, 1.344; 95% CI, 1.074–1.682) and prediabetes (OR, 1.132 95% CI, 0.960 – 1.337) in all the subjects. Similarly, triglycerides levels remained positively associated with diabetes (OR, 1.586; 95% CI, 1.269 – 1.981) and prediabetes (OR, 1.379;95% CI, 1.179 – 1.612) in all the subjects. The fatty pancreas is an important associated factor for newly diagnosed diabetes independent of age, gender, adiposity, and other cardiometabolic risk factors in Nepali population.