The generally accepted hypothesis for the pathogenesis of alcoholic liver disease (ALD) is the two-hit model, which proposes that fat accumulation in the liver increases the sensitivity of the liver to a second hit that leads to inflammatory liver cell damage. In this study we evaluated the effects of Magnolia officinalis (MO), which contains honokiol and magnolol as the primary pharmacological components, to eradicate fatty liver in rats fed an ethanol diet. In vitro studies showed that MO was able to protect RAW 264.7 cells from ethanol-induced production of tumor necrosis factor-alpha, reactive oxygen species, and superoxide anion radicals; the activation of NADPH oxidase; and subsequent cell death. We also investigated the therapeutic effects of MO on alcoholic fatty liver in Lieber-DeCarli ethanol diet-fed rats. MO treatment of the rats for the last 2 weeks of ethanol feeding completely reversed all the serum, hepatic parameters, and fatty liver changes. The increased maturation of sterol regulatory element-binding protein-1c in the liver by ethanol treatment was completely inhibited by treatment with MO. Therefore, MO may be a promising candidate for development as a therapeutic agent for ALD.