Peroxisome proliferator‐activated receptor γ (PPARγ) is highly expressed in trophoblast tissues in pregnancy during which the protein participates in diverse events, including embryo implantation and placental formation. However, little is known about the role of PPARγ in embryonic development. This study investigated the function of PPARγ in sheep trophoblast cells. The coding sequence of sheep PPARγ encoded 475 amino acids and included one synonymou mutation compared with the sheep reference sequence for PPARγ. The PPARγ protein was localized in the nucleus and cytoplasm of sheep trophoblasts. The relative expression of PPARγ was elevated in cells treated with rosiglitazone and reduced following administration of GW9662. Activation of PPARγ promoted cell proliferation and mobility, but inhibited apoptosis. In addition, stimulation of PPARγ promoted the expression of lipid metabolism‐related genes FABP4 and PLIN2. The expression of prostaglandin metabolism‐related genes PLA2G4A, PTGS2 and PTGES also was upregulated significantly in trophoblast cells when PPARγ was activated. In contrast, activation of PPARγ did not impact expression of the prostaglandin‐related genes PGFS and SLCO2A1. At the same time, activation of PPARγ activity increased the ratio of PGE2 to PGF2α. Furthermore, fluorescence labelling showed that the numbers of cell lipid droplets increased after stimulation of PPARγ activity, but decreased when PPARγ was inhibited. In conclusion, PPARγ is critical for the regulation of lipid metabolism and prostaglandin synthesis and secretion in sheep trophoblast cells and also has a potent effect on cell proliferation and viability.