The addition of palmitate to cysteine residues enhances the hydrophobicity of proteins, and consequently their membrane association. Here we have investigated whether this type of fatty acylation also regulates protein-protein interactions. GAP-43 is a neuronal protein that increases guanine nucleotide exchange by heterotrimeric G proteins. Two cysteine residues near the N-terminus of GAP-43 are subject to palmitoylation, and are necessary for membrane binding as well as for G(o) activation. N-terminal peptides, which include these cysteines, stimulate G(o). Monopalmitoylation reduces, and dipalmitoylation abolishes the activity of the peptides. The activity of GAP-43 protein purified from brain also is reversibly blocked by palmitoylation. This suggests that palmitoylation controls a cycle of GAP-43 between an acylated, membrane-bound reservoir of inactive GAP-43, and a depalmitoylated, active pool of protein.