Obesity, a state of increased adipose tissue mass, is a major cause for type 2 diabetes, hyperlipidemia, and hypertension, resulting in clustering of risk factors for atherosclerosis. Heterozygous PPARgamma knockout mice and KKA(y) mice administered with a PPARgamma antagonist were protected from high-fat diet-induced adipocyte hypertrophy and insulin resistance. Moderate reduction of PPARgamma activity prevented adipocyte hypertrophy, thereby diminution of TNFalpha, resistin, and FFA and upregulation of adiponectin and leptin. These alterations led to reduction of tissue TG content in muscle/liver, thereby ameliorating insulin resistance. Insulin resistance in the lipoatrophic mice and KKA(y) mice were ameliorated by replenishment of adiponectin. Moreover, adiponectin transgenic mice ameliorated insulin resistance and diabetes, but not the obesity of ob/ob mice. Furthermore, targeted disruption of the adiponectin gene caused moderate insulin resistance and glucose intolerance. In muscle, adiponectin activated AMP kinase and PPARgamma pathways, thereby increasing beta-oxidation of lipids, leading to decreased TG content, which ameliorated muscle insulin resistance. In the liver, adiponectin also activated AMPK, thereby downregulating PEPCK and G6Pase, leading to decreased glucose output from the liver. In conclusion, PPARgamma plays a central role in the regulation of adipocyte hypertrophy and insulin sensitivity. The upregulation of the adiponectin pathway by PPARgamma may play a role in the increased insulin sensitivity of heterozygous PPARgamma knockout mice, and activation of adiponectin pathway may provide novel therapeutic strategies for obesity-linked disorders such as type 2 diabetes and metabolic syndrome.