Rosiglitazone is a PPARγ agonist commonly used to treat diabetes. In addition to improving insulin sensitivity, rosiglitazone restores normal vascular function by a mechanism that remains poorly understood. Here we show that adiponectin is required to mediate the PPARγ effect on vascular endothelium of diabetic mice. In db/db and diet-induced obese mice, PPARγ activation by rosiglitazone restores endothelium-dependent relaxation of aortae, whereas diabetic mice lacking adiponectin or treated with an anti-adiponectin antibody do not respond. Rosiglitazone stimulates adiponectin release from fat explants, and subcutaneous fat transplantation from rosiglitazone-treated mice recapitulates vasodilatation in untreated db/db recipients. Mechanistically, adiponectin activates AMPK/eNOS and cAMP/PKA signaling pathways in aortae, which increase NO bioavailability and reduce oxidative stress. Taken together, these results demonstrate that adipocyte-derived adiponectin is required for PPARγ-mediated improvement of endothelial function in diabetes. Thus, the adipose tissue represents a promising target for treating diabetic vasculopathy.