Inactivating mutations in the PPT1 gene encoding palmitoyl-protein thioesterase-1 (PPT1) underlie the CLN1 disease, a devastating neurodegenerative lysosomal storage disorder. The mechanism of pathogenesis underlying CLN1 disease has remained elusive. PPT1 is a lysosomal enzyme, which catalyzes the removal of palmitate from S-palmitoylated proteins (constituents of ceroid lipofuscin) facilitating their degradation and clearance by lysosomal hydrolases. Thus, it has been proposed that Ppt1-deficiency leads to lysosomal accumulation of ceroid lipofuscin leading to CLN1 disease. While S-palmitoylation is catalyzed by palmitoyl acyltransferases (called ZDHHCs), palmitoyl-protein thioesterases (PPTs) depalmitoylate these proteins. We sought to determine the mechanism by which Ppt1-deficiency may impair lysosomal degradative function leading to infantile neuronal ceroid lipofuscinosis pathogenesis. Here, we report that in Ppt1-/- mice, which mimic CLN1 disease, low level of inositol 3-phosphate receptor-1 (IP3R1) that mediates Ca++ transport from the endoplasmic reticulum to the lysosome dysregulated lysosomal Ca++ homeostasis. Intriguingly, the transcription factor nuclear factor of activated T-cells, cytoplasmic 4 (NFATC4), which regulates IP3R1-expression, required S-palmitoylation for trafficking from the cytoplasm to the nucleus. We identified two palmitoyl acyltransferases, ZDHHC4 and ZDHHC8, which catalyzed S-palmitoylation of NFATC4. Notably, in Ppt1-/- mice, reduced ZDHHC4 and ZDHHC8 levels markedly lowered S-palmitoylated NFATC4 (active) in the nucleus, which inhibited IP3R1-expression, thereby dysregulating lysosomal Ca++ homeostasis. Consequently, Ca++ -dependent lysosomal enzyme activities were markedly suppressed. Impaired lysosomal degradative function impaired autophagy, which caused lysosomal storage of undigested cargo. Importantly, IP3R1-overexpression in Ppt1-/- mouse fibroblasts ameliorated this defect. Our results reveal a previously unrecognized role of Ppt1 in regulating lysosomal Ca++ homeostasis and suggest that this defect contributes to pathogenesis of CLN1 disease.