Non alcoholic steatohepatitis is a subset of NAFLD that is established by presence of morphological changes on liver biopsy similar to those seen in alcoholic hepatitis including macrovesicular steatosis , necrosis, parenchymal inflammation, ballooning hepatocyte degeneration and fibrosis.The aim of the present study is to find out the prevalence of steatohepatitis in patients with fatty liver and type 2 diabetes and to find out the relation between degree of glycemic control and the histologic changes. The present study was conducted on 22 female patients with type 2 diabetes mellitus and hepatomegaly and 20 healthy control of comparable age and sex. Laboratory investigations were done for both cases and controls while liver biopsy was done for patients only. Fasting and 2hour postprandial plasma glucose, HbA1c%, bilrubin, AST , alkaline phosphatase, and serum triglycerides were significantly higher in patients than controls, there was no significant difference in ALT and cholesterol between patients and controls . Out of 22 patients with palpable hepatomegaly and enlarged bright liver on abdominal ultrasound, 22 (100%) patients had fatty liver (hepatic steatosis) in liver histology. Necrosis was detected in 6 patients(27.3%). Lymphocyte infiltration was detected in 8 patients (36.4%). Fibrosis was detected in 9 patients (40.9%). Collagen in space of Disse was detected in 12 patients (54.5%) and excessive glycogen in nuclei was detected in 12 patients (54.5%).Patients with necrosis had alkaline phosphatase higher than patients without necrosis, patients with fibrosis had HbA1c% higher than patients without fibrosis, while patients with collagen in space of Disse had higher fasting and postprandial blood sugar than those without collagen in space of Disse.It can be concluded that nonalcoholic steatohepatitis (macrovesicular steatosis and lobular inflammation) occurs in 36.4 % of patients with hepatic steatosis and type 2 diabetes mellitus. Hepatocyte necrosis and progression to hepatic fibrosis may occur in some cases. Progression to hepatic fibrosis may be associated inadequate glycemic control.