Peroxisome proliferator-activated receptors (PPARs) are nuclear hormone receptors controlling the expression of genes involved in lipid homeostasis. PPARs activate gene transcription in response to a variety of compounds including hypolipidemic drugs as well as natural fatty acids. From the plethora of PPAR activators, Scatchard analysis of receptor-ligand interactions has thus far identified only four ligands. These are the chemotactic agent leukotriene B₄ and the hypolipidemic drug Wy 14,643 for the α-subtype and a prostaglandin J2 metabolite and synthetic antidiabetic thiazolidinediones for the γ-subtype. Based on the hypothesis that ligand binding to PPAR would induce interactions of the receptor with transcriptional coactivators, we have developed a novel ligand sensor assay, termed coactivator-dependent receptor ligand assay (CARLA). With CARLA we have screened several natural and synthetic candidate ligands and have identified naturally occurring fatty acids and metabolites as well as hypolipidemic drugs as bona fide ligands of the three PPAR subtypes from Xenopus laevis. Our results suggest that PPARs, by their ability to interact with a number of structurally diverse compounds, have acquired unique ligand-binding properties among the superfamily of nuclear receptors that are compatible with their biological activity.