Context: Although thyroid function is associated with several risk factors of nonalcoholic fatty liver disease (NAFLD), its role in NAFLD development remains unclear. Objective: We aimed to prospectively investigate the association between variations in thyroid function and NAFLD. Design and Setting: The Rotterdam Study, a large population-based, prospective cohort study. Participants and Main Outcome Measures: Participants with thyroid function measurements at baseline and NAFLD data (ie, at baseline fatty liver index/at follow-up ultrasound) were eligible. Transient elastography was performed to assess the presence of fibrosis in patients with NAFLD, using the liver stiffness measurements more than or equal to 8 kPa as cutoff for clinically relevant fibrosis. The association between thyroid parameters and incident NAFLD was explored by using logistic regression models. Results: A total of 9419 participants (mean age, 64.75 y) were included. The median follow-up time was 10.04 years (interquartile range, 5.70–10.88 y). After adjusting for age, sex, cohort, follow-up time, use of hypolipidemic drugs, and cardiovascular risk factors, higher free T4 levels were associated with a decreased risk of NAFLD (odds ratio, 0.42; 95% confidence interval CI, 0.28–0.63). In line, higher TSH levels were associated with an increased risk of having clinically relevant fibrosis in NAFLD (odds ratio, 1.49; CI, 1.04–2.15). Compared with euthyroidism, hypothyroidism was associated with a 1.24-fold higher NAFLD risk (CI, 1.01–1.53). Moreover, NAFLD risk decreased gradually from hypothyroidism to hyperthyroidism (P for trend = .003). Conclusion: Lower thyroid function is associated with an increased NAFLD risk. These findings may lead to new avenues regarding NAFLD prevention and treatment. This study evaluated the effect of thyroid function on the subsequent risk of NAFLD and presence of clinically relevant fibrosis. Lower thyroid function was associated with an increased NAFLD risk.