To elucidate the function of PPARγ in leptin-deficient mouse (ob/ob) liver, a PPARγ liver-null mouse on an ob/ob background, ob/ob-PPARγ(fl/fl)AlbCre⁺, was produced using a floxed PPARγ allele, PPARγ(fl/fl), and Cre recombinase under control of the albumin promoter (AlbCre). The liver of ob/ob-PPARγ(fl/fl)AlbCre⁺ mice had a deletion of exon 2 and a corresponding loss of full-length PPARγ mRNA and protein. The PPARγ-deficient liver in ob/ob mice was smaller and had a dramatically decreased triglyceride (TG) content compared with equivalent mice lacking the AlbCre transgene (ob/ob-PPARγ(fl/fl)AlbCre^–). Messenger RNA levels of the hepatic lipogenic genes, fatty acid synthase, acetyl-CoA carboxylase, and stearoyl-CoA desaturase-1, were reduced in ob/ob-PPARγ(fl/fl)AlbCre⁺ mice, and the levels of serum TG and FFA in ob/ob-PPARγ(fl/fl)AlbCre⁺ mice were significantly higher than in the control ob/ob-PPARγ(fl/fl)AlbCre^– mice. Rosiglitazone treatment exacerbated the fatty liver in ob/ob-PPARγ(fl/fl)AlbCre^– mice compared with livers from nonobese Cre^– mice; there was no effect of rosiglitazone in ob/ob-PPARγ(fl/fl)AlbCre⁺ mice. The deficiency of hepatic PPARγ further aggravated the severity of diabetes in ob/ob mice due to decreased insulin sensitivity in muscle and fat. These data indicate that hepatic PPARγ plays a critical role in the regulation of TG content and in the homeostasis of blood glucose and insulin resistance in steatotic diabetic mice.