The intestinal protozoan parasite Giardia lamblia undergoes surface antigenic variation whereby one of a family of structurally related variant-specific surface proteins (VSPs) is replaced in a regulated process by another antigenically distinct VSP. All VSPs are type I membrane proteins that have a conserved hydrophobic sequence terminated by the invariant hydrophilic amino acids, CRGKA. Using transfected Giardia constitutively expressing HA-tagged VSPH7 and incubated with radioactive [3H]palmitate, we demonstrate that the palmitate is attached to the Cys in the conserved CRGKA tail. Surface location of mutant VSPs lacking either the CRGKA tail or its Cys is identical to that of wild-type VSPH7 but non-palmitoylated mutants fail to undergo complement-independent antibody specific cytotoxicity. In addition, membrane localization of non-palmitoylated mutant VSPH7 changes from a pattern similar to rafts to non-rafts. Palmitoyl transferases (PAT), responsible for protein palmitoylation in other organisms, often possess a cysteine-rich domain containing a conserved DHHC motif (DHHC-CRD). An open reading frame corresponding to a putative 50 kDa Giardia PAT (gPAT) containing a DHHC-CRD motif was found in the Giardia genome database. Expression of epitope-tagged gPAT using a tetracycline inducible vector localized gPAT to the plasma membrane, a pattern similar to that of VSPs. Transfection with gPAT antisense producing vectors inhibits gPAT expression and palmitoylation of VSPs in vitro confirming the function of gPAT. These results show that VSPs are palmitoylated at the cysteine within the conserved tail by gPAT and indicate an essential function of palmitoylation in control of VSP-mediated signalling and processing.