Palmitoylation is a reversible post-translational modification used by cells to regulate protein activity. The regulator of G-protein signaling (RGS) proteins RGS4 and RGS16 share conserved cysteine (Cys) residues that undergo palmitoylation. In the accompanying article (Hiol, A., Davey, P. C., Osterhout, J. L., Waheed, A. A., Fischer, E. R., Chen, C. K., Milligan, G., Druey, K. M., and Jones, T. L. Z. (2003) J. Biol. Chem. 278, 19301-19308), we determined that mutation of NH2-terminal cysteine residues in RGS16 (Cys-2 and Cys-12) reduced GTPase accelerating (GAP) activity toward a 5-hydroxytryptamine (5-HT1A)/G alpha o1 receptor fusion protein in cell membranes. NH2-terminal acylation also permitted palmitoylation of a cysteine residue in the RGS box of RGS16 (Cys-98). Here we investigated the role of internal palmitoylation in RGS16 localization and GAP activity. Mutation of RGS16 Cys-98 or RGS4 Cys-95 to alanine reduced GAP activity on the 5-HT1A/G alpha o1 fusion protein and regulation of adenylyl cyclase inhibition. The C98A mutation had no effect on RGS16 localization or GAP activity toward purified G-protein alpha subunits. Enzymatic palmitoylation of RGS16 resulted in internal palmitoylation on residue Cys-98. Palmitoylated RGS16 or RGS4 WT but not C98A or C95A preincubated with membranes expressing 5-HT1a/G alpha o1 displayed increased GAP activity over time. These results suggest that palmitoylation of a Cys residue in the RGS box is critical for RGS16 and RGS4 GAP activity and their ability to regulate Gi-coupled signaling in mammalian cells.