Type II platelet-activating factor-acetylhydrolase [PAF-AH (II)] is an N-myristoylated enzyme that contains a lipase/esterase catalytic motif and selectively hydrolyzes the sn-2 acetyl ester of PAF and other short-chain acyl groups attached to phosphoglycerides. However, the physiological role of this enzyme remains to be elucidated. PAF-AH (II) is conserved in a variety of species ranging from a simple multicellular organism, Caenorhabditis elegans, to mammals. C. elegans possesses two homologous PAF-AH (II) genes, named paf-1 and paf-2. In this study, we generated these two loss-of-function mutants to elucidate the in vivo PAF-AH (II) function. Surprisingly, mutants of paf-2, a major isoform of C. elegans PAF-AH (II)s, exhibits gross defects in epithelial sheet formation, resulting in unsuccessful subsequent morphogenesis with complete penetrance. Moreover, paf-2 RNA interference worms show a variable abnormal morphology, including ectopic protrusions and a lumpy shape at the late embryonic and early larval stages due to epithelial organization defects. Consistent with these phenotypes, PAF-AH (II) is predominantly expressed in epithelial cells of C. elegans. This study demonstrates that PAF-AH (II) is essential for epithelial morphogenesis.