The presence of fatty liver per ultrasound and liver-associated enzymes were measured in a select cohort of youth with both obesity and insulin resistance, and the effect of metformin on these parameters evaluated. Fifty obese, multiethnic, insulin-resistant adolescents (mean age 15.1 yr, mean body mass index 39.8 kg/m2) were randomized to receive lifestyle recommendations plus either twice per day doses of 850 mg of metformin or placebo. Fasting and post-glucose challenge biochemistries and liver ultrasounds were compared at baseline and 6 months. The prevalence of fatty liver was 74%, elevated alanine aminotransferase (ALT) 14%, aspartate aminotransferase (AST) 14%, and gamma-glutamyl transferase (GGT) 17%. Fatty liver was mild in 23%, moderate in 31%, and severe in 46%. Fatty liver was more common in male and Hispanic subjects and elevated ALT more common in Hispanic subjects. Subjects with fatty liver appeared more insulin resistant (higher fasting insulin and triglycerides, lower high-density lipoprotein cholesterol) and had higher ALT and AST. At 6 months, mean ALT, GGT, and fasting insulin improved significantly in all subjects. Fatty liver prevalence (p < 0.04), severity (p < 0.04), and fasting insulin (p < 0.025) improved significantly with metformin compared to placebo. Non-alcoholic fatty liver disease (NAFLD) occurs with a high prevalence and severity in obese, insulin-resistant adolescents. While metformin plus lifestyle intervention appears promising, defining NAFLD therapies capable of preventing fibrosis and cirrhosis requires further study.