Transforming growth factorβ1 (TGFβ1) promotes fibrosis by, among other mechanisms, activating quiescent fibroblasts into myofibroblasts and increasing the expression of extracellular matrices. Recent work suggests that peroxisome proliferator-activated receptorγ(PPARγ) is a negative regulator of TGFβ1-induced fibrotic events. We, however, hypothesized that antifibrotic pathways mediated by PPARγare influenced by TGFβ1, causing an imbalance towards fibrogenesis. Consistent with this, primary murine primary lung fibroblasts responded to TGFβ1 with a sustained downregulation of PPARγtranscripts. This effect was dampened in lung fibroblasts deficient in Smad3, a transcription factor that mediates many of the effects of TGFβ1. Paradoxically, TGFβ1 stimulated the activation of the PPARγgene promoter and induced the phosphorylation of PPARγin primary lung fibroblasts. The ability of TGFβ1 to modulate the transcriptional activity of PPARγwas then tested in NIH/3T3 fibroblasts containing a PPARγ-responsive luciferase reporter. In these cells, stimulation of TGFβ1 signals with a constitutively active TGFβ1 receptor transgene blunted PPARγ-dependent reporter expression induced by troglitazone, a PPARγactivator. Overexpression of PPARγprevented TGFβ1 repression of troglitazone-induced PPARγ-dependent gene transcription, whereas coexpression of PPARγand Smad3 transgenes recapitulated the TGFβ1 effects. We conclude that modulation of PPARγis controlled by TGFβ1, in part through Smad3 signals, involving regulation of PPARγexpression and transcriptional potential.