Many cell surface proteins are anchored to a membrane via a glycosylphosphatidylinositol (GPI), which is attached to the C termini in the endoplasmic reticulum. The inositol ring of phosphatidylinositol is acylated during biosynthesis of GPI. In mammalian cells, the acyl chain is added to glucosaminyl phosphatidylinositol at the third step in the GPI biosynthetic pathway and then is usually removed soon after the attachment of GPIs to proteins. The mechanisms and roles of the inositol acylation and deacylation have not been well clarified. Herein, we report derivation of human and Chinese hamster mutant cells defective in inositol acylation and the gene responsible, PIG-W. The surface expressions of GPI-anchored proteins on these mutant cells were greatly diminished, indicating the critical role of inositol acylation. PIG-W encodes a 504-amino acid protein expressed in the endoplasmic reticulum. PIG-W is most likely inositol acyltransferase itself because the tagged PIG-W affinity purified from transfected human cells had inositol acyltransferase activity and because both mutant cells were complemented with PIG-W homologs of Saccharomyces cerevisiae and Schizosaccharomyces pombe. The inositol acylation is not essential for the subsequent mannosylation, indicating that glucosaminyl phosphatidylinositol can flip from the cytoplasmic side to the luminal side of the endoplasmic reticulum.