Neuromodulin (GAP-43) is a neurospecific calmodulin binding protein which is implicated in neuronal growth and regeneration. It is concentrated in neuronal growth cones and associates with membranes through the palmitoylation of the N-terminal peptide MLCCMRRTK at Cys-3 and Cys-4. In the present study, we have identified critical amino acid residues required for palmitoylation and membrane association of neuromodulin in vivo. Several neuromodulin constructs with point mutations were tested for membrane association and palmitoylation. Wild-type neuromodulin expressed in COS-7 cells incorporated [3H]palmitic acid, whereas a mutant in which both Cys-3 and Cys-4 were substituted with glycine was not palmitoylated in vivo. Mutant proteins in which either Cys-3 or Cys-4 was substituted with leucine incorporated 75% and 25% of [3H]palmitic acid, respectively, compared to wild-type neuromodulin. The relative distribution of mutant neuromodulins expressed in COS-7 cells was quantitated by immunoblot analysis of the membrane and cytosolic fractions. There was a general correlation between membrane association of mutant neuromodulins and the extent to which they were palmitoylated in vivo. Additional point mutations in the acylation domain of neuromodulin indicated that a short hydrophobic amino acid sequence N-terminal to Cys-4 may be required for optimal palmitoylation and membrane association. We conclude that Cys-4 is critical for the palmitoylation and membrane association of neuromodulin.