PPARgamma is a dominant regulator of fat cell differentiation. However, this nuclear receptor also plays an important role in the differentiation of intestinal and other epithelial cell types. The mechanism by which PPARgamma can influence the differentiation of such diverse cell lineages is unknown. We show here that PPARgamma interacts with Hic-5, a coactivator protein expressed in gut epithelial cells. Hic-5 and PPARgamma colocalize to the villus epithelium of the small intestine, and their expression during embryonic gut development correlates with the transition from endoderm to a specialized epithelium; expression of both these factors is reduced in tumors. Forced expression of Hic-5 in colon cancer cells enhances the PPARgamma-mediated induction of several gut epithelial differentiation/maturation markers such as L-FABP, kruppel-like factor 4 (KLF4), and keratin 20. siRNA directed against Hic-5 specifically reduces PPARgamma-mediated induction of gut epithelial genes in colon cells and in an ex vivo model of embryonic gut differentiation. Finally, forced expression of Hic-5 during 3T3-L1 preadipocyte differentiation inhibits adipogenesis while inducing inappropriate expression of several mRNAs characteristic of gut epithelium in these mesenchymal cells. These results indicate that Hic5 is an important component in determining an epithelial differentiation program induced by PPARgamma.