Although peroxisome proliferator-activated receptor gamma (PPARγ) agonists such as thiazolidinediones (TZDs) are widely used to treat type 2 diabetes, how its activation in individual tissues contributes to TZD's therapeutic action remains controversial. As TZDs are known to have receptor-independent effects, we sought to establish gain-of-function animal models to delineate the receptor's insulin-sensitizing actions. Unexpectedly, we find that selective activation of PPARγ in adipocytes, but not in macrophages, is sufficient for whole-body insulin sensitization equivalent to systemic TZD treatment. In addition to improved adipokine, inflammatory, and lipid profiles, PPARγ activation in mature adipocytes normalizes serum insulin without increased adipogenesis. Co-culture studies indicated that PPARγ-activated adipocytes broadly suppress induction of inflammatory cytokines and C-X-C family chemokines in macrophages. Collectively, these data describe an “adipocentric” model in which adipose activation of PPARγ is sufficient for complete insulin sensitization and suggest a specific application for fat selective PPARγ modulators in diabetic therapy.