BACKGROUND & AIMS: All 4 differentiated epithelial cell types found in the intestinal epithelium derive from the intestinal epithelial stem cells present in the crypt unit, in a process whose molecular clues are intensely scrutinized. Peroxisome proliferator-activated receptor beta (PPARbeta) is a nuclear hormone receptor activated by fatty acids and is highly expressed in the digestive tract. However, its function in intestinal epithelium homeostasis is understood poorly. METHODS: To assess the role of PPARbeta in the small intestinal epithelium, we combined various cellular and molecular approaches in wild-type and PPARbeta-mutant mice. RESULTS: We show that the expression of PPARbeta is particularly remarkable at the bottom of the crypt of the small intestine where Paneth cells reside. These cells, which have an important role in the innate immunity, are strikingly affected in PPARbeta-null mice. We then show that Indian hedgehog (Ihh) is a signal sent by mature Paneth cells to their precursors, negatively regulating their differentiation. Importantly, PPARbeta acts on Paneth cell homeostasis by down-regulating the expression of Ihh, an effect that can be mimicked by cyclopamine, a known inhibitor of the hedgehog signaling pathway. CONCLUSIONS: We unraveled the Ihh-dependent regulatory loop that controls mature Paneth cell homeostasis and its modulation by PPARbeta. PPARbeta currently is being assessed as a drug target for metabolic diseases; these results reveal some important clues with respect to the signals controlling epithelial cell fate in the small intestine.