Peroxisome proliferator-activated receptor (PPAR)-γ2, a member of the nuclear hormone receptor superfamily, plays a key role in adipocyte differentiation. Its amino-terminal region carries a ligand-independent gene-activating function, AF-1, and is composed of activation as well as repression domains. We have found PPARγ2 and its isoform, PPARγ1, to be modified by small ubiquitin-related modifier (SUMO)-1 in vivo, at a lysine residue in the repression domain. In reporter assays, a sumoylation-defective K107R mutant of PPARγ2 exhibited much stronger transactivation than the wild-type, comparable with that of a mutant deleted for the repression domain. A close inverse correlation was observed between the levels of sumoylation and transactivation by PPARγ2, in analyses employing PPARγ2 forms with mutations in the sumoylation motif and a dominant-negative mutant of the SUMO conjugating enzyme, Ubc9. Studies with phosphorylation-defective mutants suggested that phosphorylation at S112 of PPARγ2 promotes K107 sumoylation, and this latter exerts the more potent repressive effects. The K107R mutant PPARγ2, when infected into NIH3T3 cells with a viral vector, promoted differentiation into adipocytes more efficiently than the wild-type. These observations provide evidence that sumoylation is involved in negative regulation of the transactivating function of PPARγ2.