Adipose differentiation is an important part of the energy homeostasis system of higher organisms. Recent data have suggested that this process is controlled by an interplay of transcription factors including PPARγ, the C/EBPs, and ADD1/SREBP1. Although these factors interact functionally to initiate the program of differentiation, there are no data concerning specific mechanisms of interaction. We show here that the expression of ADD1/SREBP1 specifically increases the activity of PPARγ but not other isoforms, PPARα, or PPARδ. This activation occurs through the ligand-binding domain of PPARγ when it is fused to the DNA-binding domain of Gal4. The stimulation of PPARγ by ADD1/SREBP1 does not require coexpression in the same cells; supernatants from cultures that express ADD1/SREBP1 augment the transcriptional activity of PPARγ. Finally, we demonstrate directly that cells expressing ADD1/SREBP1 produce and secrete lipid molecule(s) that bind directly to PPARγ, displacing the binding of radioactive thiazolidinedione ligands. These data establish that ADD1/SREBP1 can control the production of endogenous ligand(s) for PPARγ and suggest a mechanism for coordinating the actions of these adipogenic factors.