Adipose differentiation is an important part of the energy homeostasis system of higher organisms. Recent data have suggested that this profess is controlled by an interplay of transcription factors including PPAR gamma, the C/EBPs, and ADD1/SREBP1. Although these factors interact functionally to initiate the program of differentiation, there are no data concerning specific mechanisms of interaction. We show here that the expression of ADD1/SREBP1 specifically increases the activity of PPAR gamma but not other isoforms, PPAR alpha, or PPAR delta. This activation occurs through the ligand-binding domain of PPAR gamma when it is fused to the DNA-binding domain of Gal4. The stimulation of PPAR gamma by ADD1/SREBP1 does not require coexpression in the same cells; supernatants from cultures that express ADD1/SREBP1 augment the transcriptional activity of PPAR gamma, Finally, we demonstrate directly that cells expressing ADD1/SREBP1 produce and secrete lipid molecule(s) that hind directly to PPAR gamma, displacing the binding of radioactive thiazolidinedione ligands, These data establish that ADD1/SREBP1 can control the production of endogenous ligand(s) for PPAR gamma and suggest a mechanism for coordinating the actions of these adipogenic factors.