To investigate the role of radioactive iodine (RAI) in the onset and progression of thyroid-associated ophthalmopathy (TAO). Forty-six Graves' disease patients with mild or no ophthalmopathy were prospectively treated with carbimazole (CBZ) (n = 22) or RAI (n = 24). Treatment effects were evaluated clinically over 12 months, and with orbital MRI-measured extra-ocular muscle (EOM) volumes at baseline and at 6 months. The diagnosis of TAO was based on the clinical activity score (CAS) system. There were 11/22 CBZ and 10/24 RAI patients with active ophthalmopathy at baseline. Despite greater mean TSH levels post-RAI (P = 0.003), there was no increase in the likelihood of developing active ophthalmopathy (OR 0.95; 95% CI 0.56-1.61, P = 0.9) or EOM dysfunction (OR 0.52; 95% CI 0.26-1.06, P = 0.074). The increased mean palpebral aperture post-RAI (P = 0.023) and greater mean proptosis in the CBZ group (P = 0.005) were not confirmed when the absolute values of these measurements were examined. There was no association between the treatment received and MRI-measured EOM volumes. In this study, RAI therapy for Graves' disease did not increase the risk of progression or development of ophthalmopathy in patients with mild or no eye disease at baseline.