The nuclear receptor peroxisome proliferator-activated receptor (PPAR) gamma plays a key role in the regulation of glucose and lipid metabolism in adipocytes by regulating their differentiation, maintenance, and function. A heterozygous mutation in the PPARG gene, which changes an arginine residue at position 425 into a cysteine (R425C), has been reported in a patient with familial partial lipodystrophy subtype 3 (FPLD3). The strong conservation of arginine 425 among nuclear receptors that heterodimerize with retinoic acid X receptor prompted us to investigate the functional consequences of the R425C mutation on PPARgamma function. Here we show that this mutant displayed strongly reduced transcriptional activity compared with wild-type PPARgamma, irrespective of cell type, promoter context, or ligand, whereas transrepression of nuclear factor-kappaB activity remained largely intact. Our data indicate that the reduced transcriptional activity of PPARgamma R425C is not caused by impaired corepressor release, but due to reduced dimerization with retinoic acid X receptor alpha in combination with reduced ligand binding and subsequent coactivator binding. As a consequence of these molecular defects, the R425C mutant was less effective in inducing adipocyte differentiation. PPARgamma R425C did not inhibit its wild-type counterpart in a dominant-negative manner, suggesting a haploinsufficiency mechanism in at least some FPLD3 patients. Using molecular dynamics simulations, substitution of R425 with cysteine is predicted to cause the formation of an alternative salt bridge. This structural change provides a likely explanation of how mutation of a single conserved residue in a patient with FPLD3 can disrupt the function of the adipogenic transcription factor PPARgamma on multiple levels.