Nonalcoholic fatty liver disease (NAFLD) is an important risk factor for the development of type 2 diabetes mellitus. Interferon gamma-induced protein 10 (IP-10), a proinflammatory chemokine, plays a crucial role in inflammatory diseases. This cross-sectional pilot study investigated whether circulating IP-10 is associated with the progression of liver disease and prediabetes in patients with NAFLD. A total of 90 patients with NAFLD alone (n = 48) or NAFLD with incident diabetes (n = 42) and 43 controls participated in this study. Fasting plasma was used to assess metabolic parameters, inflammatory factors, endotoxin levels and malondialdehyde (MDA) concentrations. Insulin resistance was estimated using homeostatic model assessment (HOMA-IR). IP-10 levels were significantly higher in patients with NAFLD alone (median (interquartile range): 369.44 (309.30–418.97) pg/mL) and in those with incident diabetes (418.99 (330.73–526.04) pg/mL) than in controls (293.37 (214.10–331.57) pg/mL) (P < 0.001). IP-10 levels were positively correlated with levels of alanine aminotransferase, hs-CRP, MDA, MCP-1 and TNF-α as well as HOMA-IR values. Ordinal logistic regression analysis revealed IP-10 was an independent risk factor associated with progressive liver injury, insulin resistance and incident diabetes. Circulating IP-10 may be a non-invasive biomarker for disease progression and subsequent diabetes development of NAFLD.