The functional interaction between the peroxisome proliferator-activated receptor (PPAR) and its coactivator PGC-1 is crucial for the normal physiology of PPAR and its pharmacological response to antidiabetic treatment with rosiglitazone. Here we report the crystal structure of the PPAR ligand binding domain (LBD) bound to rosiglitazone and to a large PGC-1 fragment that contains two LXXLL-related motifs. The structure reveals critical contacts mediated through the first LXXLL motif of PGC-1 and the PPAR coactivator binding site. Through a combination of biochemical and structural studies, we demonstrate that the first LXXLL motif of is the most potent PPAR binding motif among all nuclear receptor coactivator motifs tested, and only this motif of the two LXXLL-related motifs in PGC-1 is capable of binding to PPAR. Our studies reveal that the strong interaction of PGC-1 and PPAR is mediated through both hydrophobic and specific polar interactions. Mutations within the context of the full-length PGC-1 indicate that the first PGC-1 motif is necessary and sufficient for PGC-1 to coactivate PPAR in the presence or absence of rosiglitazone. These results provide a molecular basis for specific recruitment and functional interplay between PPAR and PGC-1 in glucose homeostasis and adipocyte differentiation.