The thiazolidinediones improve insulin sensitivity in animal models and have promise as potent oral antidiabetic agents. Their clinical use has been limited because of the resulting anemia and cardiac hypertrophy. Some compounds of this class have been reported to induce bone marrow fat accumulation in animals, and this effect could account for the observed anemia. We examined the biological mechanism contributing to this phenomenon. The thiazolidinediones BRL49653 and pioglitazone induced adipocyte differentiation in the BMS2 bone marrow stromal cell line in a dose- and time-dependent manner. These actions were further enhanced by the presence of glucocorticoids and other adipogenic agonists. The thiazolidinediones increased the mRNA levels of adipocyte-specific genes, including that of their receptor, the peroxisome proliferator-activated receptor-gamma (PPAR gamma). In contrast, mRNA levels of genes encoding other PPAR family members (PPAR alpha, PPAR delta, or NUC-1) were unchanged or decreased. Thiazolidinedione treatment of primary bone marrow stromal cells elicited a comparable dose-dependent response. Using a polyclonal antibody, PPAR gamma was detected in protein lysates from adipose-rich bone marrow. Thus, thiazolidinedione directly regulates bone marrow stromal cell differentiation; induced PPAR gamma expression may play a key regulatory role in this process.