This study investigated the combined effect of handgrip strength (HGS) and non-alcoholic fatty liver disease (NAFLD) on pulmonary function using the Korea National Health and Nutrition Examination Survey (KNHANES) from 2016 to 2018. For the present study, forced vital capacity (FVC), forced expiratory volume in 1 second (FEV1), the FEV1/FVC ratio, handgrip strength (HGS) and the hepatic steatosis index (HSI) to estimate NAFLD were obtained from nationwide cross-sectional surveys. For HGS, subjects were divided into higher HGS (upper 50%) and lower HGS (lower 50%). For NAFLD, subjects were divided into the NAFLD cohort (HSI > 36) and the normal cohort (HSI ≤ 36). Of 1651 subjects (men, n = 601), 25.5% of subjects (n = 421) met the HSI > 36. Based on the normal cohort with high HGS, the normal cohort with low HGS showed an increased risk of reduced FVC (OR = 3.062, 95% CI = 2.46–4.83, p < 0.001) and the NAFLD cohort with low HGS showed a further increased risk of reduced FVC (OR = 4.489, 95% CI = 3.43–7.09, p < 0.001). However, the risk of reduced FVC was not significantly increased in NAFLD with high HGS (OR = 1.297, 95% CI = 0.67–2.50, p = 0.436). After adjusted for covariates such as age, sex, smoking, FBG, HDL-C, TG, SBP, DBP, CRP and alcohol consumption, the results remained similar. More importantly, these results were consistent in the obesity-stratified analysis. The current findings of the study suggest that higher muscle strength is associated with a lower risk of reduced pulmonary function in individuals with NAFLD.