Overnutrition and obesity promote adipose tissue dysfunction, often leading to systemic insulin resistance. The thiazolidinediones (TZDs) are a potent class of insulin-sensitizing drugs and ligands of PPARγ that improve insulin sensitivity, but their use is limited due to significant side effects. Recently, we demonstrated a mechanism by which TZDs improve insulin sensitivity distinct from receptor agonism and adipogenesis: reversal of obesity-linked phosphorylation of PPARγ at Serine 273. However, the role of this modification has not been tested genetically. Here we demonstrate that mice encoding an allele of PPARγ which cannot be phosphorylated at S273 are protected from insulin resistance, without exhibiting differences in body weight or TZD-associated side effects. Indeed, hyperinsulinemic-euglycemic clamp experiments confirm improved insulin sensitivity, as evidenced by increased whole-body glucose uptake. RNA-seq experiments reveal PPARγ S273 phosphorylation specifically enhances transcription of Gdf3, a BMP family member. Ectopic expression of Gdf3 is sufficient to induce insulin resistance in lean, healthy mice. We find that Gdf3 can impact metabolism by inhibition of BMP signaling. Together, these results highlight the diabetogenic role of PPARγ S273 phosphorylation and focuses attention on a putative target, Gdf3.