Heterozygous peroxisome proliferator-activated receptor-gamma (PPAR-gamma)-deficient (PPARgamma(+/-)) mice were protected from high-fat diet-induced insulin resistance. To determine the impact of systemic reduction of PPAR-gamma activity on beta-cell function, we investigated insulin secretion in PPARgamma(+/-) mice on a high-fat diet. Glucose-induced insulin secretion in PPARgamma(+/-) mice was impaired in vitro. The tissue triglyceride (TG) content of the white adipose tissue, skeletal muscle, and liver was decreased in PPARgamma(+/-) mice, but it was unexpectedly increased in the islets, and the increased TG content in the islets was associated with decreased glucose oxidation. Administration of a PPAR-gamma agonist, pioglitazone, reduced the islet TG content in PPARgamma(+/-) mice on a high-fat diet and ameliorated the impaired insulin secretion in vitro. Our results demonstrate that PPAR-gamma protects islets from lipotoxicity by regulating TG partitioning among tissues and that a PPAR-gamma agonist can restore impaired insulin secretion under conditions of islet fat accumulation.