The nuclear receptor peroxisome proliferator-activated receptor ␥ (PPAR-␥) is an important target in diabetes therapy, but its direct role, if any, in the restoration of islet function has remained controversial. To identify potential molecular mechanisms of PPAR-␥ in the islet, we treated diabetic or glucose-intolerant mice with the PPAR-␥ agonist pioglitazone or with a control. Treated mice exhibited significantly improved glycemic control, corresponding to increased serum insulin and enhanced glucose-stimulated insulin release and Ca 2؉ responses from isolated islets in vitro. This improved islet function was at least partially attributed to significant upregulation of the islet genes Irs1, SERCA, Ins1/2, and Glut2 in treated animals. The restoration of the Ins1/2 and Glut2 genes corresponded to a two-to threefold increase in the euchromatin marker histone H3 dimethyl-Lys4 at their respective promoters and was coincident with increased nuclear occupancy of the islet methyltransferase Set7/9. Analysis of diabetic islets in vitro suggested that these effects resulting from the presence of the PPAR-␥ agonist may be secondary to improvements in endoplasmic reticulum stress. Consistent with this possibility, incubation of thapsigargin-treated INS-1  cells with the PPAR-␥ agonist resulted in the reduction of endoplasmic reticulum stress and restoration of Pdx1 protein levels and Set7/9 nuclear occupancy. We conclude that PPAR-␥ agonists exert a direct effect in diabetic islets to reduce endoplasmic reticulum stress and enhance Pdx1 levels, leading to favorable alterations of the islet gene chromatin architecture.Type 2 diabetes mellitus results from a combination of insulin resistance and progressive islet dysfunction (46). In many individuals, -cell failure may precede the clinical diagnosis of diabetes, and landmark studies such as the United Kingdom Prospective Diabetes Study have shown a continued decrement in -cell function despite treatment intervention with sulfonylureas, metformin, and insulin (52). Thiazolidinediones are orally active agents used in the treatment of type 2 diabetes that act as agonists for the nuclear transcription factor peroxisome proliferator-activated receptor ␥ (PPAR-␥) (60). Although thiazolidinediones are classically thought to act as peripheral insulin sensitizers, there is growing evidence from studies of human and animal models that these agents may also act to preserve and/or enhance -cell function in the setting of progressive type 2 diabetes and insulin resistance (3, 12). PPAR-␥ is known to be expressed in the pancreatic islet (8, 48), and PPAR-responsive elements have been identified in the promoters of genes involved in glucose-stimulated insulin secretion, including Glut2, Gck, and Pdx1 (16,21,26,27,33). Reports from studies of -cell lines, rodent models of progressive type 2 diabetes, and humans at risk for type 2 diabetes suggest that PPAR-␥ agonist administration leads to preservation of islet mass and function (10,13,18,22,25,33,57,58).Whereas the studies noted ab...