The degree of fatty acid unsaturation, that is, the ratio of unsaturated versus saturated fatty acyl chains, determines membrane fluidity. Regulation of expression of the fatty acid desaturase Ole1p was hitherto the only known mechanism governing the degree of fatty acid unsaturation in Saccharomyces cerevisiae. We report a novel mechanism for the regulation of fatty acid desaturation that is based on competition between Ole1p and the glycerol-3-phosphate acyltransferase Sct1p/Gat2p for the common substrate C16:0-CoA. Deletion of SCT1 decreases the content of saturated fatty acids, whereas overexpression of SCT1 dramatically decreases the desaturation of fatty acids and affects phospholipid composition. Whereas overexpression of Ole1p increases desaturation, co-overexpression of Ole1p and Sct1p results in a fatty acid composition intermediate between those obtained upon overexpression of the enzymes separately. On the basis of these results, we propose that Sct1p sequesters C16:0-CoA into lipids, thereby shielding it from desaturation by Ole1p. Ta-king advantage of the growth defect conferred by overexpressing SCT1, we identified the acyltransferase Cst26p/Psi1p as a regulator of Sct1p activity by affecting the phosphorylation state and overexpression level of Sct1p. The level of Sct1p phosphorylation is increased when cells are supplemented with saturated fatty acids, demonstrating the physiological relevance of our findings.