Small heterodimer partner (SHP, NR0B2) is an atypical orphan nuclear receptor that inhibits transcriptional activation by several other nuclear receptors. We recently reported that mutations in the SHP gene are associated with insulin resistance. In the present study, we demonstrated that the SHP gene is expressed in adipose tissues. A reporter gene assay showed that a gene product of SHP increased the transcriptional activation of peroxisome proliferator-activated receptor (PPAR) gamma. SHP-mediated activation of PPARgamma was observed both in the presence and absence of the ligand of PPARgamma. Immunoprecipitation and glutathione S-transferase pull-down assay showed that SHP directly bound to PPARgamma and competed with nuclear receptor corepressor for binding to PPARgamma. Serial deletion studies indicated that the C terminus of SHP is important for PPARgamma activation. Mutant SHP proteins, which are found in naturally occurring mutation, showed less enhancing activity for PPARgamma than wild-type SHP. Our results suggest that SHP may act as an endogenous enhancer of PPARgamma.