Peroxisome proliferator-activated receptor gamma 2 (PPAR gamma 2) is an adipocyte-specific nuclear hormone receptor that has recently been identified as a key regulator of two fat cell enhancers. Transcriptional activation by PPAR gamma 2 is potentiated by a variety of lipids and lipid-like compounds, including naturally occurring polyunsaturated fatty acids. We demonstrate here that retroviral expression of PPAR gamma 2 stimulates adipose differentiation of cultured fibroblasts. PPAR activators promote the differentiation of PPAR gamma 2-expressing cells in a dose-dependent manner. C/EBP alpha, a second transcription factor induced during adipocyte differentiation, can cooperate with PPAR gamma 2 to stimulate the adipocyte program dramatically. Our results suggest that the physiologic role of PPAR gamma 2 is to regulate development of the adipose lineage in response to endogenous lipid activators and that this factor may serve to link the process of adipocyte differentiation to systemic lipid metabolism.