Adipocyte differentiation is controlled by many transcription factors, but few known downstream targets of these factors are necessary for adipogenesis. Here we report that retinol saturase (RetSat), which is an enzyme implicated in the generation of dihydroretinoid metabolites, is induced during adipogenesis and is directly regulated by the transcription factor peroxisome proliferator activated receptor gamma (PPARgamma). Ablation of RetSat dramatically inhibited adipogenesis but, surprisingly, this block was not overcome by the putative product of RetSat enzymatic activity. On the other hand, ectopic RetSat with an intact, but not a mutated, FAD/NAD dinucleotide-binding motif increased endogenous PPARgamma transcriptional activity and promoted adipogenesis. Indeed, RetSat was not required for adipogenesis when cells were provided with exogenous PPARgamma ligands. In adipose tissue, RetSat is expressed in adipocytes but is unexpectedly downregulated in obesity, most likely owing to infiltration of macrophages that we demonstrate to repress RetSat expression. Thiazolidinedione treatment reversed low RetSat expression in adipose tissue of obese mice. Thus, RetSat plays an important role in the biology of adipocytes, where it favors normal differentiation, yet is reduced in the obese state. RetSat is thus a novel target for therapeutic intervention in metabolic disease.