ABSTRACT Type 2 diabetes mellitus (T2DM) and metabolic dysfunction‐associated steatohepatitis (MASH) frequently coexist and are mechanistically linked via insulin resistance, lipotoxicity, and chronic inflammation. Cholic acid (CA), a primary bile acid (BA), modulates metabolic and immune pathways by influencing BA composition and the gut microbiota. In this study, we examined the role of dietary CA in the modulation of T2DM and MASH in Tsumura Suzuki obese diabetes (TSOD) mice, a model of spontaneous obesity and diabetes. Mice were fed a high‐fat, high‐cholesterol diet with or without CA (iHFC and CA(−) iHFC diets, respectively). CA supplementation significantly improved hyperglycemia and hyperinsulinemia, independent of adipose tissue inflammation. These metabolic benefits were associated with an increased intestinal abundance of Akkermansia muciniphila and elevated ileal expression of fibroblast growth factor 15 (FGF‐15), suggesting activation of the FXR–FGF‐15 axis. However, CA also exacerbated MASH, accompanied by increased hepatic inflammation, fibrosis, and accumulation of hepatotoxic BAs, including deoxycholic acid and taurodeoxycholic acid. The removal of CA mitigated these hepatic changes while abolishing glycemic improvement. Accordingly, CA can exert opposing effects in TSOD mice—ameliorating T2DM while worsening MASH—highlighting the need for caution when targeting BA pathways in metabolic diseases.