Peroxisome proliferator-activated receptor gamma (PPARgamma) is a nuclear receptor that regulates gene transcription associated with intermediary metabolism, adipocyte differentiation, and tumor suppression and proliferation. To understand the role of PPARgamma in tumorigenesis, transgenic mice were generated with mammary gland-directed expression of the dominant-negative transgene Pax8PPARgamma. Transgenic mice were phenotypically indistinguishable from wild-type (WT) mice, but mammary epithelial cells expressed a greater percentage of CD29(hi)/CD24(neg), CK5(+), and double-positive CK14/CK18 cells. These changes correlated with reduced PTEN and increased Ras and extracellular signal-regulated kinase (ERK) and AKT activation. Although spontaneous tumorigenesis did not occur, transgenic animals were highly susceptible to progestin/7,12-dimethylbenz(a)anthracene-induced mammary carcinogenesis, which in contrast to WT mice resulted in a high tumor multiplicity and, most importantly, in the appearance of predominantly estrogen receptor alpha-positive (ER(+)) ductal adenocarcinomas. Tumors expressed a similar PTEN(lo)/pERK(hi)/pAKT(hi) phenotype as mammary epithelium and exhibited high activation of estrogen response element-dependent reporter gene activity. Tumorigenesis in MMTV-Pax8PPARgamma mice was insensitive to the chemopreventive effect of a PPARgamma agonist but was profoundly inhibited by the ER antagonist fulvestrant. These results reveal important new insights into the previously unrecognized role of PPARgamma in the specification of mammary lineage and the development of ER(+) tumors.