Peroxisome proliferator-activated receptor gamma (PPAR gamma) is a member of the nuclear hormone receptor superfamily, and is an important regulator of adipogenesis and adipocyte gene expression. PPAR gamma exists as two isoforms, PPAR gamma 1 and PPAR gamma 2, that differ only in their N termini, Both isoforms are activated by ligands that include the antidiabetic thiazoladinedione drugs and 15-deoxy-Delta(12,14)-prostaglandin J2, and potential differences in their function have yet to be described. We report. that, in addition to a Ligand-activated transcriptional activity, when studied under conditions of ligand depletion, intact PPAR gamma has a ligand-independent activation domain. To identify the basis for this ligand-independent activation, we used GAL4-PPAR gamma chimeric expression constructs and UAS-TK-LUC in CV1 cells and isolated rat adipocytes. In both cell systems, isolated PPAR gamma 1 and PPAR gamma 2 N termini have activation domains, and the activation function of PPAR gamma 2 is 5-6-fold greater than that of PPAR gamma 1. Insulin enhances the transcriptional effect mediated by both PPAR gamma 1 and PPAR gamma 2 N-terminal domains. These data demonstrate that 1) PPAR gamma has an N-terminal (ligand-independent) activation domain; 2) PPAR gamma 1 and PPAR gamma 2 N terminal have distinct activation capacities; and 3) insulin can potentiate the activity of the N-terminal domain of PPAR gamma.