The cancer metastasis suppressor protein KAI1/CD82 is a member of the tetraspanin superfamily. Recent studies have demonstrated that tetraspanins are palmitoylated and that palmitoylation contributes to the organization of tetraspanin webs or tetraspanin-enriched microdomains. However, the effect of palmitoylation on tetraspanin-mediated cellular functions remains obscure. In this study, we found that tetraspanin KAI1/CD82 was palmitoylated when expressed in PC3 metastatic prostate cancer cells and that palmitoylation involved all of the cytoplasmic cysteine residues proximal to the plasma membrane. Notably, the palmitoylation-deficient KAI1/CD82 mutant largely reversed the wild-type KAI1/CD82's inhibitory effects on migration and invasion of PC3 cells. Also, palmitoylation regulates the subcellular distribution of KAI1/CD82 and its association with other tetraspanins, suggesting that the localized interaction of KAI1/CD82 with tetraspanin webs or tetraspanin-enriched microdomains is important for KAI1/CD82's motility-inhibitory activity. Moreover, we found that KAI1/CD82 palmitoylation affected motility-related subcellular events such as lamellipodia formation and actin cytoskeleton organization and that the alteration of these processes likely contributes to KAI1/CD82's inhibition of motility. Finally, the reversal of cell motility seen in the palmitoylation-deficient KAI1/CD82 mutant correlates with regaining of p130(CAS)-CrkII coupling, a signaling step important for KAI1/CD82's activity. Taken together, our results indicate that palmitoylation is crucial for the functional integrity of tetraspanin KAI1/CD82 during the suppression of cancer cell migration and invasion.