Protein S-palmitoylation, the covalent lipid modification of the side chain of Cys residues with the 16-carbon fatty acid palmitate, is the most common acylation of proteins in eukaryotic cells. This post-translational modification provides an important mechanism for regulating protein subcellular localization, stability, trafficking, translocation to lipid rafts, aggregation, interaction with effectors and other aspects of protein function. In addition, N-terminal myristoylation and C-terminal prenylation, two well-studied post-translational modifications, frequently precede protein S-palmitoylation at a nearby spot of the polypeptide chain. Whereas N-myristoylation and prenylation are considered essentially irreversible attachments, S-palmitoylation is a tightly regulated, reversible modification. In addition, the unique reversibility of protein palmitoylation also allows proteins to rapidly shuttle between intracellular membrane compartments in a process controlled, in some cases, by the DHHC family of palmitoyl transferases. Recent cotransfection experiments using the DHHC family of protein palmitoyl transferases as well as RNA interference results have revealed that these enzymes, frequently localized to the Golgi apparatus, tightly control subcellular trafficking of acylated proteins. In this article we will give an overview of how protein palmitoylation regulates protein trafficking and subcellular localization.