The intracellular juxtamembrane domain of the EGF receptor has been shown to be involved in the stimulation of the receptor's tyrosine kinase activity. To further explore the function of this portion of the EGF receptor, a consensus site for protein palmitoylation was inserted at the beginning of the juxtamembrane domain of the receptor. The altered EGF receptor incorporated [ 3H]palmitate, demonstrating that it was palmitoylated. Compared to the wild-type EGF receptor, the palmitoylated EGF receptor was significantly impaired in EGF-stimulated receptor autophosphorylation as well as ligand-induced receptor internalization. While both the wild-type and the palmitoylated EGF receptors exhibited a similar propensity to associate with lipid rafts, only the wild-type receptor exited lipid rafts in response to EGF. Binding of [ 125I]EGF to the wild-type EGF receptor showed a curvilinear Scatchard plot with both high- and lowaffinity forms of the receptor. By contrast, the palmitoylated receptor exhibited only low-affinity EGF binding. These data suggest that the cytoplasmic juxtamembrane domain is involved not only in the transmission of the proliferative signal generated by ligand binding but also in facilitating the adoption of the high-affinity conformation by the extracellular ligand binding domain.