The use of the thiazolidinedione insulin sensitizers rosiglitazone and pioglitazone for the treatment of type 2 diabetes mellitus in recent years has proven to be effective in helping patients resume normal glycemic control. However, their use is often associated with undesirable side effects including peripheral edema, congestive heart failure and weight gain. Here, we report the identification and characterization of a novel selective PPARgamma modulator, SPPARgammaM5 ((2S)-2-(2-chloro-5-{[3-(4-chlorophenoxy)-2-methyl-6-(trifluoromethoxy)-1H-indol-1-yl]methyl} phenoxy)propionic acid), which has notable insulin sensitizing properties and a superior tolerability profile to that of rosiglitazone. SPPARgammaM5 is a potent ligand of human PPARgamma with high selectivity versus PPARalpha or PPARdelta in receptor competitive binding assays. In cell-based transcriptional activation assays, SPPARgammaM5 was a potent partial agonist of human PPARgamma in comparison to the PPARgamma full agonist rosiglitazone. Compared to rosiglitazone or the PPARgamma full agonist COOH (2-(2-(4-phenoxy-2-propylphenoxy)ethyl)indole-5-acetic acid), SPPARgammaM5 induced an attenuated PPARgamma-regulated gene expression profile in fully differentiated 3T3-L1 adipocytes and white adipose tissue of chronically treated db/db mice. SPPARgammaM5 treatment also reduced the insulin resistance index by homeostasis model assessment (HOMA), suggesting an improvement in insulin resistance in these db/db mice. Treatment of obese Zucker rats with either rosiglitazone or SPPARgammaM5 resulted in an improvement in selected parameters that serve as surrogate indicators of insulin resistance and hyperlipidemia. However, unlike rosiglitazone, SPPARgammaM5 did not cause significant fluid retention or cardiac hypertrophy in these rats. Thus, compounds such as SPPARgammaM5 may offer beneficial effects on glycemic control with significantly attenuated adverse effects.