Triacylglycerols are stored in eukaryotic cells within lipid droplets (LD). The LD core is enwrapped by a phospholipid monolayer with phosphatidylcholine (PC), the major phospholipid, and phosphatidylethanolamine (PE), a minor component. We demonstrate that the onset of LD formation is characterized by a change in cellular PC, PE, and phosphatidylserine (PS). With induction of differentiation of 3T3-L1 fibroblasts into adipocytes, the cellular PC/PE ratio decreased concomitant with LD formation, with the most pronounced decline between confluency and day 5. The mRNA for PS synthase-1 (forms PS from PC) and PS decarboxylase (forms PE from PS) increased after day 5. Activity and protein of PE N-methyltransferase (PEMT), which produces PC by methylation of PE, are absent in 3T3-L1 fibroblasts but were induced at day 5. High fat challenge induced PEMT expression in mouse adipose tissue. PE, produced via PS decarboxylase, was the preferred substrate for methylation to PC. A PEMT-GFP fusion protein decorated the periphery of LD. PEMT knockdown in 3T3-L1 adipocytes correlated with increased basal triacylglycerol hydrolysis. Pemt(-/-) mice developed desensitization against adenosine-mediated inhibition of basal hydrolysis in adipose tissue, and adipocyte hypotrophy was observed in Pemt(-/-) animals on a high fat diet. Knock-out of PEMT in adipose tissue down-regulated PS synthase-1 mRNA, suggesting coordination between PE supply and converting pathways during LD biosynthesis. We conclude that two consecutive processes not previously related to LD biogenesis, (i) PE production via PS and (ii) PE conversion via PEMT, are implicated in LD formation and stability.