Wnt proteins are a family of secreted signaling proteins that play key roles in regulating cell proliferation in both embryonic and adult tissues. Production of active Wnt depends on attachment of palmitoleate, a monounsaturated fatty acid, to a conserved serine by the acyltransferase Porcupine (PORCN). Studies of PORCN activity relied on cell-based fatty acylation and signaling assays as no direct enzyme assay had yet been developed. Here, we present the first in vitro assay that accurately recapitulates PORCN-mediated fatty acylation of a Wnt substrate. The critical feature is the use of a double disulfide-bonded Wnt peptide that mimics the two-dimensional structure surrounding the Wnt acylation site. PORCN-mediated Wnt acylation was abolished when the Wnt peptide was treated with DTT, and did not occur with a linear (non-disulfide-bonded) peptide, or when the double disulfide-bonded Wnt peptide contained Ala substituted for the Ser acylation site. We exploited this in vitro Wnt acylation assay to provide direct evidence that the small molecule LGK974, which is in clinical trials for managing Wnt-driven tumors, is a bona fide PORCN inhibitor whose IC50 for inhibition of Wnt fatty acylation in vitro closely matches that for inhibition of Wnt signaling. Side-by-side comparison of PORCN and Hedgehog acyltransferase (HHAT), two enzymes that attach 16-carbon fatty acids to secreted proteins, revealed that neither enzyme will accept the other's fatty acyl-CoA or peptide substrates. These findings illustrate the unique enzyme–substrate selectivity exhibited by members of the membrane-bound O-acyl transferase family.