Objective Guidelines for thyroid function evaluation recommend testing TSH first, then assessing fT4 only if TSH is out of the reference range (two-step), but many clinicians initially request both TSH and fT4 (one-step). Given limitations of previous studies, we aimed to compare the two-step with the one-step approach in an unselected community-dwelling study population, and develop a prediction score based on clinical parameters that could identify at-risk patients for thyroid dysfunction. Design Cross-sectional analysis of the population-based Busselton Health Study. Methods We compared the two-step with the one-step approach, focusing on cases that would be missed by the two-step approach, i.e. those with normal TSH, but out-of-range fT4. We used likelihood ratio tests to identify demographic and clinical parameters associated with thyroid dysfunction and developed a clinical prediction score by using a beta-coefficient based scoring method. Results Following the two-step approach, 93.0% of all 4471 participants had normal TSH and would not need further testing. The two-step approach would have missed 3.8% of all participants (169 of 4471) with a normal TSH, but a fT4 outside the reference range. In 85% (144 of 169) of these cases, fT4 fell within 2 pmol/l of fT4 reference range limits, consistent with healthy outliers. The clinical prediction score that performed best excluded only 22.5% of participants from TSH testing. Conclusion The two-step approach may avoid measuring fT4 in as many as 93% of individuals with a very small risk of missing thyroid dysfunction. Our findings do not support the simultaneous initial measurement of both TSH and fT4.