Thraustochytrids are marine microorganisms expected to produce useful lipids. They synthesize polyunsaturated fatty acids and sterols and store them in lipid droplets as a form of triacylglycerol (TG) and sterol ester (SE), respectively. TG is synthesized by diacylglycerol O-acyltransferase (DGAT). There are several DGAT2 homologs in Aurantiochytrium limacinum. This study indicated that DGAT2C and DGAT2D are SE synthase and TG synthase, respectively, by disrupting their corresponding genes in A. limacinum mh0186. DGAT2C is revealed as thraustochytrid-specific acyl-CoA:sterol- O-acyltransferase by performing in vivo and in vitro assays after heterologous expression in Saccharomyces cerevisiae. DGAT2C and DGAT2D localized mainly to the endoplasmic reticulum (ER) and the lipid droplet, respectively, and the two of the N-terminal domains unique to DGAT2C were essential for ER localization and SE synthesis in A. limacinum mh0186. Interestingly, the study also found that deletion of the first eight transmembrane domains in the unique N-terminal region of DGAT2C increased SE and total sterol productivity when expressed in DGAT2C-deficient A. limacinum mh0186. In addition, intermediates such as Δ7-cholesterol (provitamin D3) also accumulated in SE by expression of the N-terminal-truncated DGAT2C, along with cholesterol and Δ7-stigmasterol, a major phytosterol in A. limacinum. This study proves that DGAT2C is an ER-localized SE synthase and that its suitable N-terminal deletion can increase sterol production in thraustochytrids.