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