The discovery of gene fusion mutations, particularly in leukemia, has consistently identified new cancer pathways and led to molecular diagnostic assays and molecular-targeted chemotherapies for cancer patients. Here, we report our discovery of a novel CREB3L2-PPARγ fusion mutation in thyroid carcinoma with t(3;7)(p25;q34), showing that a family of somatic PPARγ fusion mutations exist in thyroid cancer. The CREB3L2-PPARγ fusion encodes a CREB3L2-PPARγ fusion protein that is composed of the transactivation domain of CREB3L2 and all functional domains of PPARγ1. CREB3L2-PPARγ was detected in <3% of thyroid follicular carcinomas. Engineered overexpression of CREB3L2-PPARγ induced proliferation by 40% to 45% in primary human thyroid cells, consistent with a dominant oncogenic mechanism. Wild-type CREB3L2 was expressed in the thyroid as a bZIP transcription factor with a transmembrane domain that has flanking S1P and S2P proteolytic cleavage sites. Native CREB3L2 was cleaved to nuclear CREB3L2 by regulated intramembrane proteolysis in normal thyroid cells that expressed the S1P and S2P proteases. Nuclear CREB3L2 stimulated transcription 8-fold from the EVX1 cyclic AMP (cAMP) response element in the absence of cAMP, whereas CREB3L2-PPARγ inhibited transcription 6-fold from EVX1 in the same experiments. CREB3L2-PPARγ also inhibited 4-fold the expression of thyroglobulin, a native cAMP-responsive gene, in primary thyroid cells treated with thyroid-stimulating hormone. Our findings identify a novel CREB3L2-PPARγ gene fusion mutation in thyroid carcinoma and reveal a thyroid signaling pathway that is regulated by intramembrane proteolysis and disrupted in cancer. [Cancer Res 2008;68(17):7156–64]