The neurotransmitter GABA activates heteropentameric GABA(A) receptors, which are composed mostly of alpha, beta, and gamma2 subunits. Regulated membrane trafficking and subcellular targeting of GABA(A) receptors is important for determining the efficacy of GABAergic inhibitory function. Of special interest is the gamma2 subunit, which is mostly dispensable for assembly and membrane insertion of functional receptors but essential for accumulation of GABA(A) receptors at synapses. In a search for novel receptor trafficking proteins, we have used the SOS-recruitment system and isolated a Golgi-specific DHHC zinc finger protein (GODZ) as a novel gamma2 subunit-interacting protein. GODZ is a member of the superfamily of DHHC cysteine-rich domain (DHHC-CRD) polytopic membrane proteins shown recently in yeast to represent palmitoyltransferases. GODZ mRNA is found in many tissues; however, in brain the protein is detected in neurons only and highly concentrated and asymmetrically distributed in the Golgi complex. GODZ interacts with a cysteine-rich 14-amino acid domain conserved specifically in the large cytoplasmic loop of gamma1-3 subunits but not in other GABA(A) receptor subunits. Coexpression of GODZ and GABA(A) receptors in heterologous cells results in palmitoylation of the gamma2 subunit in a cytoplasmic loop domain-dependent manner. Neuronal GABA(A) receptors are similarly palmitoylated. Thus, GODZ-mediated palmitoylation represents a novel posttranslational modification that is selective for gamma subunit-containing GABA(A) receptor subtypes, a mechanism that is likely to be important for regulated trafficking of these receptors in the secretory pathway.