Peroxisome proliferator-activated receptor gamma (PPARgamma) is a nuclear receptor that plays a pivotal role in obesity and diabetes. PPARgamma has two isoforms, PPARgamma1 and PPARgamma2. We investigated the functional differences between PPARgamma1 and PPARgamma2 by selectively disrupting PPARgamma2 in mice. In contrast to the embryonic lethality of PPARgamma-deficient mice, PPARgamma2(-/-) mice survived. Although normal development was identified in other tissues we examined, PPARgamma2(-/-) mice exhibited an overall reduction in white adipose tissue, less lipid accumulation, and decreased expression of adipogenic genes in adipose tissue. In addition, insulin sensitivity was impaired in male PPARgamma2(-/-) mice, with dramatically decreased expression of insulin receptor substrate 1 and glucose transporter 4 in the skeletal muscle, but thiazolidinediones were able to normalize this insulin resistance. Consistent with in vivo data, PPARgamma2(-/-) mouse embryonic fibroblasts showed a dramatically reduced capacity for adipogenesis in vitro compared with wild-type mouse embryonic fibroblasts. Taken together, our data demonstrate that PPARgamma2 deficiency impairs the development of adipose tissue and insulin sensitivity. PPARgamma2(-/-) mice may provide a tool to study the role of PPARgamma2 in obesity and diabetes.