The nuclear hormone receptor peroxisome proliferator-activated receptor gamma (PPAR gamma) is an important regulator of lipid and glucose homeostasis and cellular differentiation. Studies of many cell types in vitro and in vivo have demonstrated that activation of PPAR gamma can reduce cellular proliferation. We show here that activation of PPAR gamma is sufficient to reduce the proliferation of cultured insulinoma cell lines. We created a model with mice in which the expression of the PPARG gene in beta cells was eliminated (beta gamma KO mice), and these mice were found to have significant islet hyperplasia on a chow diet. Interestingly, the normal expansion of beta-cell mass that occurs in control mice in response to high-fat feeding is markedly blunted in these animals. Despite this alteration in beta-cell mass, no effect on glucose homeostasis in beta gamma KO mice was noted. Additionally, while thiazolidinediones enhanced insulin secretion from cultured wild-type islets, administration of rosiglitazone to insulin-resistant control and beta gamma KO mice revealed that PPAR gamma in beta cells is not required for the antidiabetic actions of these compounds. These data demonstrate a critical physiological role for PPAR gamma function in beta-cell proliferation and also indicate that the mechanisms controlling beta-cell hyperplasia in obesity are different from those that regulate baseline cell mass in the islet.