The PAH1-encoded phosphatidate (PA) phosphatase in Saccharomyces cerevisiae is a pivotal enzyme that produces diacylglycerol for the synthesis of triacylglycerol (TAG) and simultaneously controls the level of PA used for phospholipid synthesis. Quantitative lipid analysis showed that the pah1Δ mutation caused a reduction in TAG mass and an elevation in the mass of phospholipids and free fatty acids, changes that were more pronounced in the stationary phase. The levels of unsaturated fatty acids in the pah1Δ mutant were unaltered, although the ratio of palmitoleic acid to oleic acid was increased with a similar change in the fatty acid composition of phospholipids. The pah1Δ mutant exhibited classic hallmarks of apoptosis in stationary phase and a marked reduction in the quantity of cytoplasmic lipid droplets. Cells lacking PA phosphatase were sensitive to exogenous fatty acids in the order of toxicity palmitoleic acid > oleic acid > palmitic acid. In contrast, the growth of wild type cells was not inhibited by fatty acid supplementation. In addition, wild type cells supplemented with palmitoleic acid exhibited an induction in PA phosphatase activity and an increase in TAG synthesis. Deletion of the DGK1-encoded diacylglycerol kinase, which counteracts PA phosphatase in controlling PA content, suppressed the defect in lipid droplet formation in the pah1Δ mutant. However, the sensitivity of the pah1Δ mutant to palmitoleic acid was not rescued by the dgk1Δ mutation. Overall, these findings indicate a key role of PA phosphatase in TAG synthesis for protection against fatty acid-induced toxicity.