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Background Non-alcoholic fatty liver disease (NAFLD) is emerging as the most common chronic liver condition. Approximately 70% of type 2 diabetes mellitus (T2DM) patients have a fatty liver; the progression to non-alcoholic steatohepatitis (NASH) dramatically increases the risks of cirrhosis and hepatocellular carcinoma. The aim of our study was to assess the profile of liver enzymes in subjects with T2DM and NAFLD. Method This was a cross-sectional clinic-based study in patients with T2DM. An ultrasonography of the abdomen was done in all patients in order to examine the presence of a fatty liver. Body mass index (BMI), lipid profile, and liver enzymes were also analyzed in all patients. Institutional Review Board (IRB) approval was provided by the National Academy of Medical Sciences, Bir Hospital, Nepal. Unpaired <i>t</i>-test, Chi-square/Fisher's exact test (for categorical variables), and the Pearson/Spearman correlation test were used to find a significant difference, association, and correlation between two or more groups, respectively. The Statistical Package for Social Sciences (SPSS)® Statistics, version 16 (IBM SPSS Statistics, Armonk, NY) was used to analyse the data. Results The study was carried out in 210 patients, and out of the 210 patients, 119 (56.6%) were male and 91 (43.3%) were female. The patients were divided into two groups, i.e., the normal alanine aminotransferase (ALT) group and the elevated ALT group. The mean age of the patients was 56.28 ± 12.3 years in the normal alanine aminotransferase (ALT) group and 58.6 ± 24.7 in the elevated ALT group. The number of T2DM patients with a fatty liver was 117 (55.7%) and those with a non-fatty liver was 93 (44.2%) based on an ultrasonography scan. Subjects with NAFLD had a significantly higher ALT (p < 0.001) but no significant rise in serum aspartate aminotransferase (AST), gamma-glutamyl transferase (GGT), and alkaline phosphatase (ALP) levels. The area under the receiver operating characteristic (AUROC) curve for the prediction of fatty liver based solely on the ALT was 0.84 with the confidence interval (CI) between 0.76 and 0.92 (p < 0.05). Conclusions Non-alcoholic fatty liver disease is highly prevalent in patients with T2DM. Timely diagnosis and management of the abnormal liver parameters may help to minimize liver-related morbidity and mortality in the diabetic population.