Agouti is a secreted paracrine factor that regulates pigmentation in hair follicle melanocytes. Several dominant mutations cause ectopic expression of agouti, resulting in a phenotype characterized by yellow fur, adult-onset obesity and diabetes, increased linear growth and skeletal mass, and increased susceptibility to tumors. Humans also produce agouti protein, but the highest levels of agouti in humans are found in adipose tissue. To mimic the human agoutiexpression pattern in mice, transgenic mice (aP2-agouti) that express agouti in adipose tissue were generated. The transgenic mice develop a mild form of obesity, and they are sensitized to the action of insulin. We correlated the levels of specific regulators of insulin signaling and adipocyte differentiation with these phenotypic changes in adipose tissue. Signal transducers and activators of transcription (STAT)1, STAT3, and peroxisome proliferator-activated receptor (PPAR)-γ protein levels were elevated in the transgenic mice. Treatment of mature 3T3-L1 adipocytes recapitulated these effects. These data demonstrate that agouti has potent effects on adipose tissue. We hypothesize that agouti increases adiposity and promotes insulin sensitivity by acting directly on adipocytes via PPAR-γ.