In neurons, the axon and axon initial segment (AIS) are critical structures for action potential initiation and propagation. Their formation and function rely on tight compartmentalization, a process where specific proteins are trafficked to and retained at distinct subcellular locations. One mechanism which regulates protein trafficking and association with lipid membranes is the modification of protein cysteine residues with 16-carbon palmitic acid, known as S-acylation or palmitoylation. Palmitoylation, akin to phosphorylation, is reversible, with palmitate cycling being mediated by substrate-specific enzymes. Palmitoylation is well-known to be highly prevalent among neuronal proteins and is well studied in the context of the synapse. Comparatively, how palmitoylation regulates trafficking and clustering of axonal and AIS proteins remains less understood. This review provides an overview of the current understanding of the biochemical regulation of palmitoylation, its involvement in various neurological diseases, and the most up-to-date perspective on axonal palmitoylation. Through a palmitoylation analysis of the AIS proteome, we also report that an overwhelming proportion of AIS proteins are likely palmitoylated. Overall, our review and analysis confirm a central role for palmitoylation in the formation and function of the axon and AIS and provide a resource for further exploration of palmitoylation-dependent protein targeting to and function at the AIS.