A large number of G protein-coupled receptors are palmitoylated on cysteine residues located in their carboxyl tail, but the general role of this post-translational modification remains poorly understood. Here we show that preventing palmitoylation of the V2 vasopressin receptor, by site-directed mutagenesis of cysteines 341 and 342, significantly delayed and decreased both agonist-promoted receptor endocytosis and mitogen-activated protein kinase activation. Pharmacological blockade of receptor endocytosis is without effect on the vasopressin-stimulated mitogen-activated protein kinase activity, excluding the possibility that the reduced kinase activation mediated by the palmitoylation-less mutant could result from altered receptor endocytosis. In contrast, two dominant negative mutants of beta-arrestin which inhibit receptor endocytosis also attenuated vasopressin-stimulated mitogen-activated protein kinase activity, suggesting that the scaffolding protein, beta-arrestin, represents the common link among receptor palmitoylation, endocytosis, and kinase activation. Coimmunoprecipitation and bioluminescence resonance energy transfer experiments confirmed that inhibiting receptor palmitoylation considerably reduced the vasopressin-stimulated recruitment of beta-arrestin to the receptor. Interestingly, the changes in beta-arrestin recruitment kinetics were similar to those observed for vasopressin-stimulated receptor endocytosis and mitogen-activated protein kinase activation. Taken together the results indicate that palmitoylation enhances the recruitment of beta-arrestin to the activated V2 vasopressin receptor thus facilitating processes requiring the scaffolding action of beta-arrestin.