Nuclear factor of activated T cells (NFAT) is implicated in multiple biological processes, including cytokine gene expression, cardiac hypertrophy, and adipocyte differentiation. A conserved NFAT homology domain is identified in all NFAT members. Dephosphorylation of the NFAT homology region is critical for NFAT nuclear translocation and transcriptional activation. Here we demonstrate that NFATc4 is phosphorylated by p38 mitogen-activated protein (MAP) kinase but not by JNK. The p38 MAP kinase phosphorylates multiple residues, including Ser(168) and Ser(170), in the NFAT homology domain of NFATc4. Replacement of Ser(168,170) with Ala promotes nuclear localization of NFATc4 and increases NFAT-mediated transcription activity. Stable expression of Ala(168,170) NFATc4, but not of wild-type NFATc4, in NIH 3T3 cells promotes adipocyte formation under differentiation conditions. Molecular analysis indicates that peroxisome proliferator-activated receptor gamma 2 (PPAR gamma 2) is a target of NFAT. Two distinct NFAT binding elements are located in the PPAR gamma 2 gene promoter. Stable expression of Ala(168,170) NFATc4, but not of wild-type NFATc4, increases the expression of PPAR gamma, which contributes in part to increased adipocyte formation. Thus, NFAT regulates PPAR gamma gene expression and has a direct role in adipocyte differentiation.