Synaptosome-associated proteins SNAP-23/25, members of a family of proteins essential for exocytosis, have a highly conserved central cysteine-rich domain that plays an important role in membrane targeting. More than one cysteine in this domain is modified by palmitic acid through a thioester linkage. In an effort to address the biological significance of acylation of this domain, we have generated synthetic peptides corresponding to the cysteine-rich region of SNAP-23 and covalently modified the cysteines with palmitic acid. The interaction of acylated and nonacylated peptides with lipid vesicles and natural membranes has been investigated. Our results indicate that palmitoylation is essential for membrane association. The palmitoylated peptides were able to fuse both model and natural membranes. The extent of fusion depended on the length of the peptides and the number and positions of covalently linked palmitic acids. Peptide-mediated fusion was suppressed by lysolipid and involved both outer and inner leaflets of the lipid bilayer, which is characteristic of natural membrane fusion. Our results suggest an important role for the cysteine-rich palmitoylated domain of SNAP-23 in promoting membrane fusion in cells.