Obesity and insulin resistance are associated with deposition of triglycerides in tissues other than adipose tissue. Previously, we showed that a missense mutation (I148M) in PNPLA3 (patatin-like phospholipase domain-containing 3 protein) is associated with increased hepatic triglyceride content in humans. Here we examined the effect of the I148M substitution on the enzymatic activity and cellular location of PNPLA3. Structural modeling predicted that the substitution of methionine for isoleucine at residue 148 would restrict access of substrate to the catalytic serine at residue 47. In vitro assays using recombinant PNPLA3 partially purified from Sf9 cells confirmed that the wild type enzyme hydrolyzes emulsified triglyceride and that the I148M substitution abolishes this activity. Expression of PNPLA3-I148M, but not wild type PNPLA3, in cultured hepatocytes or in the livers of mice increased cellular triglyceride content. Cell fractionation studies revealed that approximately 90% of wild type PNPLA3 partitioned between membranes and lipid droplets; substitution of isoleucine for methionine at position 148 did not alter the subcellular distribution of the protein. These data are consistent with PNPLA3-I148M promoting triglyceride accumulation by limiting triglyceride hydrolysis.