Thiazolidinediones (TZDs) act through peroxisome proliferator activated receptor (PPAR) γ to increase insulin sensitivity in type 2 diabetes (T2DM), but deleterious effects of these ligands mean that selective modulators with improved clinical profiles are needed. We obtained a crystal structure of PPARγ ligand binding domain (LBD) and found that the ligand binding pocket (LBP) is occupied by bacterial medium chain fatty acids (MCFAs). We verified that MCFAs (C8-C10) bind the PPARγ LBD in vitro and showed that they are low-potency partial agonists that display assay-specific actions relative to TZDs; they act as very weak partial agonists in transfections with PPARγ LBD, stronger partial agonists with full length PPARγ and exhibit full blockade of PPARγ phosphorylation by cyclin-dependent kinase 5 (cdk5), linked to reversal of adipose tissue insulin resistance. MCFAs that bind PPARγ also antagonize TZD-dependent adipogenesis in vitro. X-ray structure B-factor analysis and molecular dynamics (MD) simulations suggest that MCFAs weakly stabilize C-terminal activation helix (H) 12 relative to TZDs and this effect is highly dependent on chain length. By contrast, MCFAs preferentially stabilize the H2-H3/β-sheet region and the helix (H) 11-H12 loop relative to TZDs and we propose that MCFA assay-specific actions are linked to their unique binding mode and suggest that it may be possible to identify selective PPARγ modulators with useful clinical profiles among natural products.