Palmitoylated proteins contain a 16-carbon saturated fatty acyl group that is post-translationally attached by a labile thioester bond. These modified proteins are mainly membrane-bound; the lability of the thioester bond allows the process to be reversible, a unique property of this modification. We report here that the gene for G14, located in the class III region of the human MHC, encodes a polypeptide with significant sequence similarity to mammalian palmitoyl protein thioesterase (PPT1), an enzyme that removes palmitate from palmitoylated proteins. The gene for G14, also known as PPT2, is transcribed as at least five different transcripts, which are expressed in different cell lines of the immune system. Immunoprecipitation of these mammalian cells, with an anti-G14 antiserum, showed a specific band of approx. 42 kDa in cell extracts and supernatants. Expression of the G14 cDNA in the baculovirus system revealed that it encoded a secreted glycosylated polypeptide with S-thioesterase activity. The enzymic activity of the recombinant G14 protein was further characterized in quantitative spectrophotometric assays, which revealed that it had the highest S-thioesterase activity for the acyl groups palmitic and myristic acid followed by other long-chain acyl substrates. The S-thioesterase activity of the G14 protein was found to be considerably higher in supernatants than in cell extracts, which was consistent with the protein's being secreted. The G14 polypeptide contains, in addition to an N-terminal lipase domain, a C-terminal domain common to the cytokine receptor superfamily, which might determine the substrate specificity and/or the protein target of the G14 protein.