Obesity and insulin resistance, the cardinal features of metabolic syndrome, are closely associated with a state of low-grade inflammation. In adipose tissue chronic overnutrition leads to macrophage infiltration, resulting in local inflammation that potentiates insulin resistance. For instance, transgenic expression of Mcp1 (also known as chemokine ligand 2, Ccl2) in adipose tissue increases macrophage infiltration, inflammation and insulin resistance. Conversely, disruption of Mcp1 or its receptor Ccr2 impairs migration of macrophages into adipose tissue, thereby lowering adipose tissue inflammation and improving insulin sensitivity. These findings together suggest a correlation between macrophage content in adipose tissue and insulin resistance. However, resident macrophages in tissues display tremendous heterogeneity in their activities and functions, primarily reflecting their local metabolic and immune microenvironment. While Mcp1 directs recruitment of pro-inflammatory classically activated macrophages to sites of tissue damage, resident macrophages, such as those present in the adipose tissue of lean mice, display the alternatively activated phenotype. Despite their higher capacity to repair tissue, the precise role of alternatively activated macrophages in obesity-induced insulin resistance remains unknown. Using mice with macrophage-specific deletion of the peroxisome proliferator activated receptor-gamma (PPARgamma), we show here that PPARgamma is required for maturation of alternatively activated macrophages. Disruption of PPARgamma in myeloid cells impairs alternative macrophage activation, and predisposes these animals to development of diet-induced obesity, insulin resistance, and glucose intolerance. Furthermore, gene expression profiling revealed that downregulation of oxidative phosphorylation gene expression in skeletal muscle and liver leads to decreased insulin sensitivity in these tissues. Together, our findings suggest that resident alternatively activated macrophages have a beneficial role in regulating nutrient homeostasis and suggest that macrophage polarization towards the alternative state might be a useful strategy for treating type 2 diabetes.