A number of cell types express inducible nitric-oxide synthase (NOS2) in response to exogenous insults such as bacterial lipopolysaccharide or proinflammatory cytokines. Although it has been known for some time that the N-terminal end of NOS2 suffers a post-translational modification, its exact identification has remained elusive. Using radioactive fatty acids, we show herein that NOS2 becomes thioacylated at Cys-3 with palmitic acid. Site-directed mutagenesis of this single residue results in the absence of the radiolabel incorporation. Acylation of NOS2 is completely indispensable for intracellular sorting and .NO synthesis. In fact, a C3S mutant of NOS2 is completely inactive and accumulates to intracellular membranes that almost totally co-localize with the Golgi marker beta-cop. Likewise, low concentrations of the palmitoylation blocking agents 2-Br-palmitate or 8-Br-palmitate severely affected the .NO synthesis of both NOS2 induced in muscular myotubes and transfected NOS2. However, unlike endothelial NOS, palmitoylation of inducible NOS is not involved in its targeting to caveolae. We have created 16 NOS2-GFP chimeras to inspect the effect of the neighboring residues of Cys-3 on the degree of palmitoylation. In this regard, the hydrophobic residue Pro-4 and the basic residue Lys-6 seem to be indispensable for palmitoylation. In addition, agents that block the endoplasmic reticulum to Golgi transit such as brefeldin A and monensin drastically reduced NOS2 activity leading to its accumulation in perinuclear areas. In summary, palmitoylation of NOS2 at Cys-3 is required for both its activity and proper intracellular localization.