Covalent lipid modifications anchor numerous signalling proteins to the cytoplasmic face of the plasma membrane. These modifications mediate protein-membrane and protein-protein interactions and are often essential for function. Protein palmitoylation, due to its reversible nature, may be particularly important for modulating protein function during cycles of activation and deactivation. Despite intense investigation, the exact functions of protein palmitoylation are not well understood. However, it is clear that palmitoylation can affect a protein's affinity for membranes, subcellular localization, and interactions with other proteins. In this review, recent advances in understanding the functions and mechanisms of protein palmitoylation are discussed, with particular emphasis on how this lipid affects the biochemistry and cell biology of signalling proteins.