Dynamic regulation of AMPA-type glutamate receptors represents a primary mechanism for controlling synaptic strength, though mechanisms for this process are poorly understood. The palmitoylated postsynaptic density protein, PSD-95, regulates synaptic plasticity and associates with the AMPA receptor trafficking protein, stargazin. Here, we identify palmitate cycling on PSD-95 at the synapse and find that palmitate turnover on PSD-95 is regulated by glutamate receptor activity. Acutely blocking palmitoylation disperses synaptic clusters of PSD-95 and causes a selective loss of synaptic AMPA receptors. We also find that rapid glutamate-mediated AMPA receptor internalization requires depalmitoylation of PSD-95. In a nonneuronal model system, clustering of PSD-95, stargazin, and AMPA receptors is also regulated by ongoing palmitoylation of PSD-95 at the plasma membrane. These studies suggest that palmitate cycling on PSD-95 can regulate synaptic strength and regulates aspects of activity-dependent plasticity.