Neuromodulin (also designated GAP-43, B-50, and F-1) is a prominent protein kinase C substrate attached to the membranes of neuronal growth cones during development and to presynaptic membranes in discrete subsets of adult synapses. In this study, we have examined the relationship between the attachment of neuromodulin to membranes and its phosphorylation by protein kinase C. To address this issue, we have compared wild-type and mutant neuromodulins expressed in cells that normally lack the protein. Wild-type neuromodulin expressed in Chinese hamster ovary cells was associated with membranes, incorporated [3H]palmitic acid, and was phosphorylated in response to phorbol ester treatment. Substitution of serine 41, the in vitro protein kinase C site, abolished the phorbol ester response, indicating that serine 41 serves as the sole protein kinase C phosphorylation site in vivo. Substitution of the putative fatty acylation sites, cysteines 3 and 4, abolished membrane association as well as [3H]palmitic acid labeling of neuromodulin. Fatty acylation therefore appears to serve as the mechanism for anchoring neuromodulin to membranes. Surprisingly, the soluble cysteine substitution mutant was phosphorylated by protein kinase C at a rate indistinguishable from that of the wild-type protein. Therefore, membrane association may not be required for the phosphorylation of neuromodulin by protein kinase C.