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To investigate the relationship between lumbar facet fluid and dynamic instability in degenerative spondylolisthesis (DS), as well as the relationship between facet fluid and patient-reported outcomes following a posterior lumbar fusion. We analyzed consecutive patients with degenerative spondylolisthesis undergoing single level posterior lumbar fusion from December 2010 to January 2013 at a single academic institution. We investigated the relationship between fluid in the facet joint as measured on axial MRI and the presence of dynamic instability. We investigated the impact of facet fluid, Modic changes, and dynamic instability on patient-reported outcomes. There was a significant association between the amount of facet joint fluid and the presence of dynamic instability (p = 0.03); as facet fluid increases, the probability of dynamic instability also increases. For every 1 mm of facet fluid, there was a 41.6 % increase (95 % CI 1.8–97) in the odds of dynamic instability. A facet fluid amount less than 0.5 mm gave a 90 % probability that there was no dynamic instability. The presence of facet fluid and dynamic instability were associated with achieving minimal clinical important difference (MCID) in low back pain following lumbar fusion (p = 0.04 and 0.05, respectively). Facet joint fluid is associated with the presence of dynamic instability in DS. The presence of facet fluid and dynamic instability may predict increased likelihood of achieving MCID for improvement in back pain following posterior lumbar fusion.