Membrane-intrinsic enzymes are embedded in lipids, yet how such enzymes interrogate lipid substrates remains a largely unexplored fundamental question. The outer membrane phospholipid:lipid A palmitoyltransferase PagP combats host immune defenses during infection and selects a palmitate chain using its beta-barrel interior hydrocarbon ruler. Both a molecular embrasure and crenel in Escherichia coli PagP display weakened transmembrane beta-strand hydrogen bonding to provide potential lateral routes for diffusion of the palmitoyl group between the hydrocarbon ruler and outer membrane external leaflet. Prolines in strands A and B lie beneath the dynamic L1 surface loop flanking the embrasure, whereas the crenel is flanked by prolines in strands F and G. Reversibly barricading the embrasure prevents lipid A palmitoylation without affecting the slower phospholipase reaction. Lys42Ala PagP is also a dedicated phospholipase, implicating this disordered L1 loop residue in lipid A recognition. The embrasure barricade additionally prevents palmitoylation of nonspecific fatty alcohols, but not miscible alcohols. Irreversibly barricading the crenel inhibits both lipid A palmitoylation and phospholipase reactions without compromising PagP structure. These findings indicate lateral palmitoyl group diffusion within the PagP hydrocarbon ruler is likely gated during phospholipid entry via the crenel and during lipid A egress via the embrasure.