Peroxisome proliferator-activated receptor γ (PPARγ) plays a crucial role in adipocyte differentiation, glucose metabolism, and other physiological processes. To further explore the role of PPARγ in adipose tissues, we used a Cre/loxP strategy to generate adipose-specific PPARγ knockout mice. These animals exhibited marked abnormalities in the formation and function of both brown and white adipose tissues. When fed a high-fat diet, adipose-specific PPARγ knockout mice displayed diminished weight gain despite hyperphagia, had diminished serum concentrations of both leptin and adiponectin, and did not develop glucose intolerance or insulin resistance. Characterization of in vivo glucose dynamics pointed to improved hepatic glucose metabolism as the basis for preventing high-fat diet-induced insulin resistance. Our findings further illustrate the essential role for PPARγ in the development of adipose tissues and suggest that a compensatory induction of hepatic PPARγ may stimulate an increase in glucose disposal by the liver. © 2005 by The National Academy of Sciences of the USA.