Fatty infiltration of muscle, myosteatosis, increases with age and results in reduced muscle strength and function and increased fall risk. However, it is unknown if increased fatty infiltration of muscle predisposes to hip fracture. We measured the mean Hounsfield unit (HU) of the lean tissue within the midthigh muscle bundle (thigh muscle HU, an indicator of intramuscular fat), its cross-sectional area (CSA, a measure of muscle mass) by computed tomography (CT), bone mineral density (BMD) of the hip and total-body percent fat by dual X-ray absorptiometry (DXA), isokinetic leg extensor strength, and the Short Physical Performance Battery (SPPB) in 2941 white and black women and men aged 70 to 79 years. Sixty-three hip fractures were validated during 6.6 years of follow-up. Proportional hazards regression analysis was used to assess the relative risk (RR) of hip fracture across variations in thigh muscle attenuation, CSA, muscle strength, and physical function for hip fracture. In models adjusted by age, race, gender, body mass index, and percentage fat, decreased thigh muscle HU resulted in increased risk of hip fracture [RR/SD = 1.58; 95% confidence interval (CI) 1.10-1.99], an association that continued to be significant after further adjustment for BMD. In models additionally adjusted by CSA, muscle strength, and SPPB score, decreased thigh muscle HU but none of the other muscle parameters continued to be associated with an increased risk of hip fracture (RR/SD = 1.42; 95% CI 1.03-1.97). Decreased thigh muscle HU, a measure of fatty infiltration of muscle, is associated with increased risk of hip fracture and appears to account for the association between reduced muscle strength, physical performance, and muscle mass and risk of hip fracture. This characteristic captures a physical characteristic of muscle tissue that may have importance in hip fracture etiology.