Peroxisome proliferator-activated receptor gamma (PPARgamma) plays a crucial role in adipocyte differentiation, glucose metabolism, and other physiological processes. To further explore the role of PPARgamma in adipose tissues, we used a Cre/loxP strategy to generate adipose-specific PPARgamma 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 PPARgamma 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 PPARgamma in the development of adipose tissues and suggest that a compensatory induction of hepatic PPARgamma may stimulate an increase in glucose disposal by the liver.