The Src homology 3 (SH3) motif is found in numerous signal transduction proteins involved in cellular growth and differentiation. We have purified and cloned a novel protein, DEF-1 (differentiation-enhancing factor), from bovine brain by using a Src SH3 affinity column. Ectopic expression of DEF-1 in fibroblasts resulted in the differentiation of a significant fraction of the culture into adipocytes. This phenotype appears to be related to the induction of the transcription factor peroxisome proliferator-activated receptor gamma (PPARgamma), since DEF-1 NIH 3T3 cells demonstrated augmented levels of PPARgamma mRNA and, when treated with activating PPARgamma ligands, efficient induction of differentiation. Further evidence for a role for DEF-1 in adipogenesis was provided by heightened expression of DEF-1 mRNA in adipose tissue isolated from obese and diabetes mice compared to that in tissue isolated from wild-type mice. However, DEF-1 mRNA was detected in multiple tissues, suggesting that the signal transduction pathway(s) in which DEF-1 is involved is not limited to adipogenesis. These results suggest that DEF-1 is an important component of a signal transduction process that is involved in the differentiation of fibroblasts and possibly of other types of cells.