PPARs, most notably PPAR-γ, play a crucial role in regulating the activation of alveolar macrophages, which in turn occupy a pivotal place in the immune response to pathogens and particulates drawn in with inspired air. In this review, we describe the dual role of the alveolar macrophage as both a first-line defender through its phagocytotic activity and a regulator of the immune response. Depending on its state of activation, the alveolar macrophage may either enhance or suppress different aspects of immune function in the lung. We then review the role of PPAR-γ and its ligands in deactivating alveolar macrophages—thus limiting the inflammatory response that, if unchecked, could threaten the essential respiratory function of the alveolus—while upregulating the cell's phagocytotic activity. Finally, we examine the role that inadequate or inappropriate PPAR-γ responses play in specific lung diseases.