Obesity-associated diabetes is epidemic in industrialized societies. The nuclear receptor peroxisome proliferator-activated receptor γ (PPARγ) is highly expressed in adipose tissue and the presumed molecular target for antidiabetic thiazolidinedione drugs that reverse insulin resistance but also promote weight gain. Phosphorylation reduces the activity of PPARγ in vitro, but physiological relevance has not been demonstrated. We have studied mice homozygous for a mutation (S112A) that prevents PPARγ phosphorylation. Surprisingly, the weights and adipose mass of PPARγ-S112A mice are not greater than wild-type. Remarkably, however, genetic prevention of PPARγ phosphorylation preserves insulin sensitivity in the setting of diet-induced obesity. Underlying this protection are smaller fat cells, elevated serum adiponectin, and reduced free fatty acid levels. Thus, the phosphorylation state of PPARγ modulates insulin sensitivity. Compounds that prevent PPARγ phosphorylation or ligands that induce the conformation of nonphosphorylated PPARγ may selectively enhance insulin sensitivity without increasing body weight.