The coactivator-associated arginine methyltransferase 1 (CARM1) is recruited to gene promoters by many transcription factors. To identify new pathways that use CARM1, we carried out a comprehensive transcriptome analysis of CARM1-knockout embryos. By using complementary DNA microarrays and serial analysis of gene expression, we identified various genes involved in lipid metabolism that were underrepresented in CARM1-knockout embryos, indicating an important role for this coactivator in adipose tissue biology. We also observed that the amount of brown fat in CARM1-knockout embryos is reduced. Furthermore, cells lacking CARM1 have a severely curtailed potential to differentiate into mature adipocytes. Reporter experiments and chromatin immunoprecipitation analysis show that CARM1 regulates these processes by acting as a coactivator for peroxisome proliferator-activated receptor gamma (PPARgamma). Together, these results show that CARM1 promotes adipocyte differentiation by coactivating PPARgamma-mediated transcription and thus might be important in energy balance.