Caveolae are subdomains of the plasma membrane which concentrate cholesterol, glycosphingolipids, and glycosylphosphatidylinositol-linked proteins. It has recently been demonstrated that specific members of the Src family of protein tyrosine kinases require palmitoylation of NH2-terminal cysteine residues to localize in caveolae. Here we report that caveolin, an integral membrane protein which forms part of the coat of caveolae, also incorporates palmitate through linkage to cysteine residues. Caveolin contains only three cysteine residues which are all located on the COOH-terminal side of the hydrophobic transmembrane region. Immunofluorescent staining of cells transfected with caveolin indicated that, like the NH2 terminus, this COOH-terminal region is located on the cytoplasmic side of the plasma membrane. Studies of cysteine substitution mutants showed that all three cysteines are capable of incorporating palmitate and that the juxtamembrane Cys133 residue is the predominant site of palmitoylation. Simultaneous mutation of all three cysteine residues in caveolin resulted in the loss of ability to incorporate palmitate; however, this did not affect localization of the protein. Thus, palmitoylation of cysteine residues in nonmembrane spanning Src family protein tyrosine kinases has different consequences than in the transmembrane protein caveolin.