Peroxisome proliferator-activated receptor gamma (PPARgamma) is a ligand-dependent nuclear receptor and regulates adipogenesis and fat metabolism. PPARgamma is activated by fatty acid derivatives and some synthetic compounds such as the thiazolidinediones. In addition, certain cytokines were known to affect the transactivation function of PPARgamma. However, the molecular mechanism of the functional interaction between PPARgamma and cytokine signaling remains unclear. We found that combined treatment of PPARgamma and cytokines (IL-1 or TNF-alpha) inhibited adipogenesis and induced osteoblastgenesis in bone marrow-derived mesenchymal stem cells. Furthermore, we showed that the ligand dependent transactivation function of PPARgamma was suppressed by IL-1 and TNF-alpha. This suppression was mediated through NF-kappaB activated by the TAK1/TAB1-NIK cascade, a downstream cascade triggered with IL-1 or TNF-alpha signaling. Thus, we have identified a molecular mechanism of functional cross-talk between PPARgamma and cytokine signaling that may provide a theoretical basis for development of novel therapeutical strategies and design of novel compounds for treatment of obesity, diabetes, and some other chronic diseases.