Linker for activation of T cells (LAT) is a dually palmitoylated transmembrane adaptor protein essential for T cell development and activation. However, whether LAT palmitoylation and/or lipid raft localization are required for its function is controversial. To address this question, we used a combination of biochemical, imaging, and genetic approaches, including LAT retrovirus-transduced mouse T cells and bone marrow chimeric mice. A nonpalmitoylated, non-lipid raft-residing mutant of transmembrane LAT could not reconstitute T cell development in bone marrow chimeric mice. This mutant was absent from the plasma membrane (PM) and was restricted mainly to the Golgi apparatus. A chimeric, nonpalmitoylated LAT protein consisting of the PM-targeting N-terminal sequence of Src kinase and the LAT cytoplasmic domain (Src-LAT) localized as a peripheral membrane protein in the PM, but outside lipid rafts. Nevertheless, Src-LAT restored T cell development and activation. Lastly, monopalmitoylation of LAT on Cys(26) (but not Cys(29)) was required and sufficient for its PM transport and function. Thus, the function of LAT in T cells requires its PM, but not raft, localization, even when expressed as a peripheral membrane protein. Furthermore, LAT palmitoylation functions primarily as a sorting signal required for its PM transport.