PAG, the phosphoprotein associated with glycosphingolipid-enriched microdomains (GEM), negatively regulates Src family kinases by recruiting C-terminal Src kinase (Csk) to the membrane, where Csk phosphorylates the inhibitory tyrosine of the Src kinases. S-acylation of a CxxC motif juxtaposed to the transmembrane domain within PAG has been proposed to be responsible for targeting PAG to the lipid rafts. Here, we present the characterization of a mutant PAG molecule lacking the palmitoylation motif. We demonstrate that the mutant protein is expressed at the plasma membrane, but does not localize within the GEM. Despite being displaced, the mutant PAG molecule still binds the Src kinase Fyn and the cytoskeletal adaptor ezrin-radixin-moesin-binding phosphoprotein of 50 kDa, becomes tyrosine-phosphorylated, and recruits Csk to the membrane. Functional characterization of the mutant shows that, unlike WT PAG, it does not block proximal TCR signaling, and surprisingly enhances stromal cell-derived factor 1 (CXCL12)-induced migration. The mutant functions by depleting Csk from the GEM fractions, as apparent by changes in the phosphorylation of the inhibitory tyrosines within the Src kinases. Indeed this mechanism is supported by RNA interference of PAG, which results in enhanced migration and Src kinase activity. Our results therefore support a functional role for the compartmentalization of Src kinases within the membrane.