Protein palmitoylation refers to the posttranslational addition of a 16 carbon fatty acid to the side chain of cysteine, forming a thioester linkage. This acyl modification is readily reversible, providing a potential regulatory mechanism to mediate protein-membrane interactions and subcellular trafficking of proteins. The mechanism that underlies the transfer of palmitate or other long-chain fatty acids to protein was uncovered through genetic screens in yeast. Two related S-palmitoyltransferases were discovered. Erf2 palmitoylates yeast Ras proteins, whereas Akr1 modifies the yeast casein kinase, Yck2. Erf2 and Akr1 share a common sequence referred to as a DHHC (aspartate-histidine-histidine-cysteine) domain. Numerous genes encoding DHHC domain proteins are found in all eukaryotic genome databases. Mounting evidence is consistent with this signature motif playing a direct role in protein acyltransferase (PAT) reactions, although many questions remain. This review presents the genetic and biochemical evidence for the PAT activity of DHHC proteins and discusses the mechanism of protein-mediated palmitoylation.