Cysteine palmitoylation (S-palmitoylation) is a reversible post-translational modification that is installed by the DHHC family of palmitoyltransferases and is reversed by several acyl protein thioesterases1,2. Although thousands of human proteins are known to undergo S-palmitoylation, how this modification is regulated to modulate specific biological functions is poorly understood. Here we report that the key T helper 17 (TH17) cell differentiation stimulator, STAT33,4, is subject to reversible S-palmitoylation on cysteine 108. DHHC7 palmitoylates STAT3 and promotes its membrane recruitment and phosphorylation. Acyl protein thioesterase 2 (APT2, also known as LYPLA2) depalmitoylates phosphorylated STAT3 (p-STAT3) and enables it to translocate to the nucleus. This palmitoylation-depalmitoylation cycle enhances STAT3 activation and promotes TH17 cell differentiation; perturbation of either palmitoylation or depalmitoylation negatively affects TH17 cell differentiation. Overactivation of TH17 cells is associated with several inflammatory diseases, including inflammatory bowel disease (IBD). In a mouse model, pharmacological inhibition of APT2 or knockout of Zdhhc7-which encodes DHHC7-relieves the symptoms of IBD. Our study reveals not only a potential therapeutic strategy for the treatment of IBD but also a model through which S-palmitoylation regulates cell signalling, which might be broadly applicable for understanding the signalling functions of numerous S-palmitoylation events.