Peroxisome proliferator-activated receptor (PPAR) γ is a nuclear receptor central to glucose and lipid homeostasis. PPARγ role in nonalcoholic fatty liver disease is controversial because PPARγ overexpression is a general property of steatotic livers, but its activation by thiazolidinediones reduces hepatic steatosis. Here, we investigated hepatic PPARγ function by using Cre-loxP technology to generate hepatocyte (PPARγ(Δhep))- and macrophage (PPARγ(Δmac))-specific PPARγ-knockout mice. Targeted deletion of PPARγ in hepatocytes, and to a lesser extent in macrophages, protected mice against high-fat diet-induced hepatic steatosis. Down-regulated expression of genes involved in lipogenesis (SCD1, SREBP-1c, and ACC), lipid transport (CD36/FAT, L-FABP, and MTP), and β-oxidation (PPARα and ACO) was observed in PPARγ(Δhep) mice. Moreover, PPARγ(Δhep) mice showed improved glucose tolerance and reduced PEPCK expression without changes in Pcx, Fbp1, and G6Pc expression and CREB and JNK phosphorylation. In precision-cut liver slices (PCLSs) and hepatocytes, rosiglitazone either alone or in combination with oleic acid increased triglyceride accumulation, an effect that was blocked by the PPARγ antagonist biphenol A diglycidyl ether (BADGE). PCLSs and hepatocytes from PPARγ(Δhep) mice showed blunted responses to rosiglitazone and oleic acid, whereas the response to these compounds remained intact in PCLSs from PPARγ(Δmac) mice. Collectively, these findings establish PPARγ expression in hepatocytes as a prosteatotic factor in fatty liver disease.