A semiconductor device having a novel structure by which the operating characteristics and reliability are improved and a manufacturing method thereof. An island-shaped semiconductor layer provided over a substrate, including a channel formation region provided between a pair of impurity regions; a first insulating layer provided so as to be in contact with the side surface of the semiconductor layer; a gate electrode provided over the channel formation region so as to get across the semiconductor layer; and a second insulating layer provided between the channel formation region and the gate electrode are included. The semiconductor layer is locally thinned, the channel formation region is provided in the thinned region, and the second insulating layer covers the first insulating layer provided on the side surface of the semiconductor layer at least in the region which overlaps with the gate electrode.