Palmitate, a 16-carbon saturated fatty acid, is attached to more than 100 proteins. Modification of proteins by palmitate has pleiotropic effects on protein function. Palmitoylation can influence membrane binding and membrane targeting of the modified proteins. In particular, many palmitoylated proteins concentrate in lipid rafts, and enrichment in rafts is required for efficient signal transduction. This Review focuses on the multiple effects of palmitoylation on the localization and function of ligands, receptors, and intracellular signaling proteins. Palmitoylation regulates the trafficking and function of transmembrane proteins such as ion channels, neurotransmitter receptors, heterotrimeric guanine nucleotide–binding protein (G protein)–coupled receptors, and integrins. In addition, immune receptor signaling relies on protein palmitoylation at many levels, including palmitoylated co-receptors, Src family kinases, and adaptor or scaffolding proteins. The localization and signaling capacities of Ras and G proteins are modulated by dynamic protein palmitoylation. Cycles of palmitoylation and depalmitoylation allow H-Ras and G protein α subunits to reversibly bind to and signal from different intracellular cell membranes. Moreover, secreted ligands such as Hedgehog, Wingless, and Spitz use palmitoylation to regulate the extent of long- or short-range signaling. Finally, palmitoylation can alter signaling protein function by direct effects on enzymatic activity and substrate specificity. The identification of the palmitoyl acyltransferases has provided new insights into the biochemistry of this posttranslational process and permitted new substrates to be identified.