Alcohol consumption exacerbates liver abnormalities in animal models, but whether it increases the severity of liver disease in early diabetic or prediabetic rats is unclear. To investigate the molecular mechanisms underlying alcohol‐induced liver steatosis or hepatitis, we used a prediabetic animal model. Otsuka Long‐Evans Tokushima Fatty (OLETF) and Long‐Evans Tokushima Fatty (LETO) rats were pair‐fed with an ethanol‐containing liquid diet for 6 weeks. Compared with controls, OLETF and LETO rats displayed more pronounced liver steatosis and higher plasma levels of serum glutamic oxaloacetic transaminase (SGOT) and serum glutamate pyruvate transaminase (SPGT), indicating liver injury. Ethanol‐fed LETO (Pd‐L‐E) rats showed mild liver steatosis and no inflammation compared with ethanol‐fed OLETF (Pd‐O‐E) rats. Although precursor and active SREBP‐1 levels in the liver of ethanol‐fed OLETF rats significantly increased compared with control diet‐fed OLETF rats (Pd‐O‐C), those of Pd‐L‐E rats did not. Bone morphogenetic protein (BMP) and TGF‐β1 balance in Pd‐O‐E rats was significantly altered because BMP signaling was upregulated by inducing BMP2, BMP4, BMP7, BMP9, Smad1, and Smad4, whereas TGF‐β1, Smad3, and Erk were downregulated. Activation of TGF‐β/Smad signaling inhibited BMP2 and BMP9 expression and increased epithelial‐mesenchymal transition (EMT) marker levels (Hepcidin, Snail, and Twist) in the liver of LETO rats. Livers of ethanol‐fed OLETF rats showed increased levels of vimentin, FSP‐1, α‐SMA, MMP1, MMP13, and collagen III compared with rats of other groups, whereas EMT marker levels did not change. Thus, BMP exerted anti‐ and/or pro‐fibrotic effects in ethanol‐fed rats. Therefore, BMP and TGF‐β, two key members of the TGF‐β superfamily, play important but diverse roles in liver steatosis in young LETO and OLETF rats.