Peroxisome proliferator-activated receptor γ (PPARγ) is a member of the nuclear receptor superfamily, which regulates the transcription of a variety of genes involved in lipid and glucose metabolism, inflammation, and cell proliferation. These functions correlate with the onset of type-2 diabetes, obesity, and immune disorders, which makes PPARγ a promising target for drug development. The majority of PPARγ functions are regulated by binding of small molecule ligands, which cause conformational changes of PPARγ followed by coregulator recruitment. The ligand-binding domain (LBD) of PPARγ contains a large Y-shaped cavity that can be occupied by various classes of compounds such as full agonists, partial agonists, natural lipids, and in some cases, a combination of multiple molecules. Several crystal structure studies have revealed the binding modes of these compounds in the LBD and insight into the resulting conformational changes. Notably, the apo form of the PPARγ LBD contains a highly mobile region that can be stabilized by ligand binding. Furthermore, recent biophysical investigations have shed light on the dynamic mechanism of how ligands induce conformational changes in PPARγ and result in functional output. This information may be useful for the design of new and repurposed structures of ligands that serve a different function from original compounds and more potent pharmacological effects with less undesirable clinical outcomes. This review provides an overview of the peculiar characteristics of the PPARγ LBD by examining a series of structural studies focused on the dynamic mechanism of binding and the potential applications of strategies for ligand screening and chemical labeling.