Loss-of-function mutations in bone morphogenetic protein receptor II (BMP-RII) are linked to pulmonary arterial hypertension (PAH); the ligand for BMP-RII, BMP-2, is a negative regulator of SMC growth. Here, we report an interplay between PPAR gamma and its transcriptional target apoE downstream of BMP-2 signaling. BMP-2/BMP-RII signaling prevented PDGF-BB-induced proliferation of human and murine pulmonary artery SMCs (PASMCs) by decreasing nuclear phospho-ERK and inducing DNA binding of PPAR gamma that is independent of Smad1/5/8 phosphorylation. Both BMP-2 and a PPAR gamma agonist stimulated production and secretion of apoE by SMCs. Using a variety of methods, including short hairpin RNAi in human PASMCs, PAH patient-derived BMP-RII mutant PASMCs, a PPAR gamma antagonist, and PASMCs isolated from PPAR gamma- and apoE-deficient mice, we demonstrated that the antiproliferative effect of BMP-2 was BMP-RII, PPAR gamma, and apoE dependent. Furthermore, we created mice with targeted deletion of PPAR gamma in SMCs and showed that they spontaneously developed PAH, as indicated by elevated RV systolic pressure, RV hypertrophy, and increased muscularization of the distal pulmonary arteries. Thus, PPAR gamma-mediated events could protect against PAH, and PPAR gamma agonists may reverse PAH in patients with or without BMP-RII dysfunction.