RPE65 is a membrane-associated protein abundantly expressed in the retinal pigment epithelium, which converts all-trans-retinyl ester to 11-cis-retinol, a key step in the retinoid visual cycle. Although three cysteine residues (Cys-231, Cys-329, and Cys-330) were identified to be palmitylated in RPE65, recent studies showed that a triple mutant, with all three Cys replaced by an alanine residue, was still palmitylated and remained membrane-associated, suggesting that there are other yet to be identified palmitylated Cys residues in RPE65. Here we mapped the entire RPE65 using mass spectrometry analysis and demonstrated that a trypsin-digested RPE65 fragment (residues 98-118), which contains two Cys residues (Cys-106 and Cys-112), was singly palmitylated in both native bovine and recombinant human RPE65. To determine whether Cys-106 or Cys-112 is the palmitylation site, these Cys were separately replaced by alanine. Mass spectrometry analysis of purified wild-type RPE65 and C106A and C112A mutants showed that mutation of Cys-106 did not affect the palmitylation status of the fragment 98-118, whereas mutation of Cys-112 abolished palmitylation in this fragment. Subcellular fractionation and immunocytochemistry analyses both showed that mutation of Cys-112 dissociated RPE65 from the membrane, whereas the C106A mutant remained associated with the membrane. In vitro isomerohydrolase activity assay showed that C106A has an intact enzymatic activity similar to that of wtRPE65, whereas C112A lost its enzymatic activity. These results indicate that the newly identified Cys-112 palmitylation site is essential for the membrane association and activity of RPE65.