Mutations in the depalmitoylating enzyme gene, PPT1, cause the infantile form of Neuronal Ceroid Lipofuscinosis (NCL), an early onset neurodegenerative disease. During recent years there have been different therapeutic attempts including enzyme replacement. Here we show that PPT1 is palmitoylated in vivo and is a substrate for two palmitoylating enzymes, DHHC3 and DHHC7. The palmitoylated protein is detected in both cell lysates and medium. The presence of PPT1 with palmitoylated signal peptide in the cell medium suggests that a subset of the protein is secreted by a nonconventional mechanism. Using a mutant form of PPT1, C6S, which was not palmitoylated, we further demonstrate that palmitoylation does not affect intracellular localization but rather that the unpalmitoylated form enhanced the depalmitoylation activity of the protein. The calculated Vmax of the enzyme was significantly affected by the palmitoylation, suggesting that the addition of a palmitate group is reminiscent of adding a noncompetitive inhibitor. Thus, we reveal the existence of a positive feedback loop, where palmitoylation of PPT1 results in decreased activity and subsequent elevation in the amount of palmitoylated proteins. This positive feedback loop is likely to initiate a vicious cycle, which will enhance disease progression. The understanding of this process may facilitate enzyme replacement strategies.