Protein S-palmitoylation is the thioester linkage of long-chain fatty acids to cysteine residues in proteins. Addition of palmitate to proteins facilitates their membrane interactions and trafficking, and it modulates protein-protein interactions and enzyme activity. The reversibility of palmitoylation makes it an attractive mechanism for regulating protein activity, and this feature has generated intensive investigation of this modification. The regulation of palmitoylation occurs through the actions of protein acyltransferases and protein acylthioesterases. Identification of the protein acyltransferases Erf2/Erf4 and Akr1 in yeast has provided new insight into the palmitoylation reaction. These molecules work in concert with thioesterases, such as acyl-protein thioesterase 1, to regulate the palmitoylation status of numerous signaling molecules, ultimately influencing their function. This review discusses the function and regulation of protein palmitoylation, focusing on intracellular proteins that participate in cell signaling or protein trafficking.