The lung is constantly exposed to inhaled pathogens and toxins yet totally dependent on the integrity of a delicate alveolar-capillary interface for its function. Much of the balance between protection and collateral damage rests on the alveolar macrophage, which not only phagocytoses inhaled particles but also modulates the activity of both innate and acquired immune systems to limit unnecessary or exuberant inflammation. In its resting state, the alveolar macrophage secretes anti-inflammatory mediators while limiting antigen presentation to the adaptive immune system. The alveolar macrophage's state of activation is regulated by a variety of factors, including the activity of the nuclear receptor peroxisome proliferator-activated receptor γ (PPAR-γ). Peroxisome proliferator-activated receptor γ agonists reduce the ability of inflammatory stimuli to activate the alveolar macrophage while simultaneously stimulating phagocytosis of both opsonized and unopsonized particles, via the Fcγ and CD36 receptors, respectively. All known endogenous PPAR-γ ligands are fatty acid derivatives, and macrophage-specific knockout of the enzyme that converts esterified fatty acids to free fatty acids results in severe lung inflammation. Peroxisome proliferator-activated receptor γ expression is reduced in alveolar macrophages from patients with pulmonary sarcoidosis and alveolar proteinosis, suggesting that the deficiency may play a role in pathogenesis of these diseases. In summary, these observations point to PPAR-γ in the context of the alveolar macrophage as a crucial factor in limiting excessive and possibly injurious inflammation in the lung.