To assess whether reversal of fatty liver by moderate weight loss (8% of body weight) will lead to improvements in insulin sensitivity, which will be associated with changes in both glucose status and lipid profiles, in obese children and adolescents with fatty liver who have normal glucose or pre-diabetes.

This study will have two groups: one group that eats a moderate calorie, low-fat diet and is weighed regularly (every other week for 16 weeks) and the other who receives traditional diet therapy and returns in 16 weeks. Both groups will undergo procedures that test glucose tolerance and measure liver and muscle fat content before and after study period.

Inclusion Criteria:

• 10 to 21 yrs of age
• Non-smoking
• BMI >95th percentile for age and gender, but BMI <40
• Suspicion of fatty liver, with a high ALT (>35)
• Normal glucose tolerance or prediabetes (impaired glucose tolerance or impaired fasting glucose)

Exclusion Criteria:

• Females of child-bearing potential who are not using birth control
• Pregnant or lactating females
• Current medications except oral anti-diabetic medications and hormonal birth control
• Lipid-lowering medication that increases liver enzymes
• Significant kidney dysfunction (creatinine >1.5 mg/dL)
• Current heavy ethanol use or recent history of binge drinking
• History or evidence of hepatitis A, B, or C, Wilson's Disease, or alpha-1-antitrypsin deficiency
• Known to be HIV positive
• Symptomatic angina pectoris or cardiac insufficiency as defined by the NYHA classification as Functional Class III or IV
• Major vascular event within 6 months of screening (e.g. MI, stroke)
• Active cancer within 5 years prior to screening
• Current systemic disease, including type 1 or 2 diabetes
• Enrolled in another research study within 1 month prior to screening
• Implanted paramagnetic material (all subjects will need to fill out the Yale Magnetic Resonance Center safety checklist)
• Anemia (HCT <35%)