The individual and combined effects of the saturated diacylglycerol (DAG) dipalmitin (DP) and saturated or polyunsaturated unesterified fatty acids (PUFAs) on both the structure of phosphatidylcholine/phosphatidylserine (PC/PS; 4:1 mol/mol) bilayers and on protein kinase C (PKC) activity were studied using 2H nuclear magnetic resonance (NMR) and enzyme activity assays. In the absence of DP, PUFAs only slightly activated PKC whereas palmitic acid had no effect. In the absence of fatty acids, DP induced lateral phase separation of the bilayer into liquid-crystalline and gel phases. Under these conditions virtually all DP was sequestered into the gel phase and no activation of PKC was observed. The addition of polyunsaturated arachidonic or docosahexaenoic acids to the DP-containing bilayers significantly increased the relative amounts of DP and other lipid components in the liquid-crystalline phase, correlating with a dramatic increase in PKC activity. Furthermore, the effect was greater with PS, resulting in an enrichment of PS in the liquid-crystalline domains. In the presence of DP, palmitic acid did not decrease the amount of gel phase lipid and had no effect on PKC activity. The results explain the observed lack of PKC-activating capacity of long-chain saturated DAGs as due to the sequestration of DAG into gel domains wherein it is complexed with phospholipids and thus not available for the required interaction with the enzyme.