Background: Peroxisome proliferator-activated receptors are nuclear receptors highly expressed in intestinal epithelial cells (IEC) and immune cells within the gut mucosa and are implicated in modulating inflammation and immune responses. The objective of this study was to investigate the effect of targeted deletion of PPAR γ in IEC on progression of experimental inflammatory bowel disease (IBD). Methodology/Principal Findings: In the first phase, PPAR γ flfl; Villin Cre- (VC-) and PPAR γ flfl; Villin Cre+ (VC+) mice in a mixed FVB/C57BL/6 background were challenged with 2.5% dextran sodium sulfate (DSS) in drinking water for 0, 2, or 7 days. VC+ mice express a transgenic recombinase under the control of the Villin-Cre promoter that causes an IEC-specific deletion of PPAR γ. In the second phase, we generated VC- and VC+ mice in a C57BL/6 background that were challenged with 2.5% DSS. Mice were scored on disease severity both clinically and histopathologically. Flow cytometry was used to phenotypically characterize lymphocyte and macrophage populations in blood, spleen and mesenteric lymph nodes. Global gene expression analysis was profiled using Affymetrix microarrays. The IEC-specific deficiency of PPAR γ in mice with a mixed background worsened colonic inflammatory lesions, but had no effect on disease activity (DAI) or weight loss. In contrast, the IEC-specific PPAR γ null mice in C57BL/6 background exhibited more severe inflammatory lesions, DAI and weight loss in comparison to their littermates expressing PPAR γ in IEC. Global gene expression profiling revealed significantly down-regulated expression of lysosomal pathway genes and flow cytometry results demonstrated suppressed production of IL-10 by CD4+ T cells in mesenteric lymph nodes (MLN) of IEC-specific PPAR γ null mice. Conclusions/Significance: Our results demonstrate that adequate expression of PPAR γ in IEC is required for the regulation of mucosal immune responses and prevention of experimental IBD, possibly by modulation of lysosomal and antigen presentation pathways.