Lipophilic compounds such as retinoic acid and long-chain fatty acids regulate gene transcription by activating nuclear receptors such as retinoic acid receptors (RARs) and peroxisome proliferator-activated receptors (PPARs). These compounds also bind in cells to members of the family of intracellular lipid binding proteins, which includes cellular retinoic acid-binding proteins (CRABPs) and fatty acid binding proteins (FABPs). We previously reported that CRABP-II enhances the transcriptional activity of RAR by directly targeting retinoic acid to the receptor. Here, potential functional cooperation between FABPs and PPARs in regulating the transcriptional activities of their common ligands was investigated. We show that adipocyte FABP and keratinocyte FABP (A-FABP and K-FABP, respectively) selectively enhance the activities of PPARgamma and PPARbeta, respectively, and that these FABPs massively relocate to the nucleus in response to selective ligands for the PPAR isotype which they activate. We show further that A-FABP and K-FABP interact directly with PPARgamma and PPARbeta and that they do so in a receptor- and ligand-selective manner. Finally, the data demonstrate that the presence of high levels of K-FABP in keratinocytes is essential for PPARbeta-mediated induction of differentiation of these cells. Taken together, the data establish that A-FABP and K-FABP govern the transcriptional activities of their ligands by targeting them to cognate PPARs in the nucleus, thereby enabling PPARs to exert their biological functions.