The peroxisome proliferator-activated receptor γ (PPAR-γ) has been the focus of intense research during the past decade because ligands for this receptor have emerged as potent insulin sensitizers used in the treatment of type 2 diabetes. Recent advances include the discovery of novel genes that are regulated by PPAR-γ, which helps explain how activation of this adipocyte-predominant transcription factor regulates glucose and lipid homeostasis. Increased levels of circulating free fatty acids and lipid accumulation in non-adipose tissue have been implicated in the development of insulin resistance. This situation is improved by PPAR-γ ligands, which promote fatty acid storage in fat depots and regulate the expression of adipocyte-secreted hormones that impact on glucose homeostasis. The net result of the pleiotropic effects of PPAR-γ ligands is improvement of insulin sensitivity, although undesired side-effects limit the utility of this therapy. It might be possible to dissociate the anti-diabetic and adverse effects through selective modulation of PPAR-γ activity.