Sphingoid long-chain base kinase Lcb4 catalyzes the production of the bioactive lipid molecules the long-chain base 1-phosphates. Although Lcb4 has no apparent transmembrane-spanning domain, it is tightly associated with the membrane. Here, we demonstrate that Lcb4 is modified by palmitoylation. This modification was greatly reduced in mutants for AKR1, which was recently identified as encoding a protein acyltransferase. In vitro experiments revealed that Akr1 indeed acts as a protein acyltransferase for Lcb4. Studies using site-directed mutagenesis indicated that Cys-43 and Cys-46 are palmitoylated. The loss of palmitoylation on Lcb4 caused several effects, including mislocalization of the protein to the cytosol, reduced phosphorylation, and loss of downregulation during the stationary phase. Although Akr2 is highly homologous to Akr1, the deletion of AKR2 did not result in any remarkable phenotypes. However, overproduction of Akr2 resulted in reduced amounts of Lcb4. We demonstrated that Akr2 is an unstable protein and is degraded in the vacuole. Akr2 exhibits high affinity for Lcb4, and in Akr2-overproducing cells this interaction caused unusual delivery of Lcb4 to the vacuole and degradation.