Adipose triglyceride lipase (ATGL) is rate-limiting for the initial step of triacylglycerol (TAG) hydrolysis, generating diacylglycerol (DAG) and fatty acids. DAG exists in three stereochemical isoforms. Here we show that ATGL exhibits a strong preference for the hydrolysis of long-chain fatty acid esters at the sn-2 position of the glycerol backbone. The selectivity of ATGL broadens to the sn-1 position upon stimulation of the enzyme by its co-activator CGI-58. sn-1,3 DAG is the preferred substrate for the consecutive hydrolysis by hormone-sensitive lipase. Interestingly, diacylglycerol-O-acyltransferase 2, present at the endoplasmic reticulum and on lipid droplets, preferentially esterifies sn-1,3 DAG. This suggests that ATGL and diacylglycerol-O-acyltransferase 2 act coordinately in the hydrolysis/re-esterification cycle of TAGs on lipid droplets. Because ATGL preferentially generates sn-1,3 and sn-2,3, it suggests that TAG-derived DAG cannot directly enter phospholipid synthesis or activate protein kinase C without prior isomerization.