Synthesis of fatty acid retinyl esters determines systemic vitamin A levels and provides substrate for production of visual chromophore (11-cis-retinal) in vertebrates. Lecithin:retinol acyltransferase (LRAT), the main enzyme responsible for retinyl ester formation, catalyzes the transfer of an acyl group from the sn-1 position of phosphatidylcholine to retinol. To delineate the catalytic mechanism of this reaction, we expressed and purified a fully active, soluble form of this enzyme and used it to examine the possible formation of a transient acyl-enzyme intermediate. Detailed mass spectrometry analyses revealed that LRAT undergoes spontaneous, covalent modification upon incubation with a variety of phosphatidylcholine substrates. The addition of an acyl chain occurs at the Cys(161) residue, indicating formation of a thioester intermediate. This observation provides the first direct experimental evidence of thioester intermediate formation that constitutes the initial step in the proposed LRAT catalytic reaction. Additionally, we examined the effect of increasing fatty acyl side chain length in phosphatidylcholine on substrate accessibility in this reaction, which provided insights into the function of the single membrane-spanning domain of LRAT. These observations are critical to understanding the catalytic mechanism of LRAT protein family members as well as other lecithin:acyltransferases wherein Cys residues are required for catalysis.