Previously, we have isolated and characterized an enhancer from the 5'-flanking region of the adipocyte P2 (aP2) gene that directs high-level adipocyte-specific gene expression in both cultured cells and transgenic mice. The key regulator of this enhancer is a cell type-restricted nuclear factor termed ARF6. Target sequences for ARF6 in the aP2 enhancer exhibit homology to a direct repeat of hormone response elements (HREs) spaced by one nucleotide; this motif (DR-1) has been demonstrated previously to be the preferred binding site for heterodimers of the retinoid X receptor (RXR) and the peroxisome proliferator-activated receptor (PPAR). We have cloned a novel member of the peroxisome proliferator-activated receptor family designated mPPAR gamma 2, and we demonstrate that a heterodimeric complex of mPPAR gamma 2 and RXR alpha constitute a functional ARF6 complex. Expression of mPPAR gamma 2 is induced very early during the differentiation of several cultured adipocyte cell lines and is strikingly adipose-specific in vivo. mPPAR gamma 2 and RXR alpha form heterodimers on ARF6-binding sites in vitro, and antiserum to RXR alpha specifically inhibits ARF6 activity in adipocyte nuclear extracts. Moreover, forced expression of mPPAR gamma 2 and RXR alpha activates the adipocyte-specific aP2 enhancer in cultured fibroblasts, and this activation is potentiated by peroxisome proliferators, fatty acids, and 9-cis retinoic acid. These results identify mPPAR gamma 2 as the first adipocyte-specific transcription factor and suggest mechanisms whereby fatty acids, peroxisome proliferators, 9-cis retinoic acid, and other lipids may regulate adipocyte gene expression and differentiation.