Enzymes secreted by Legionella pneumophila, such as phospholipases A (PLAs) and glycerophospholipid:cholesterol acyltransferases (GCATs), may target host cell lipids and therefore contribute to the establishment of Legionnaires disease. L. pneumophila possesses three proteins, PlaA, PlaC, and PlaD, belonging to the GDSL family of lipases/acyltransferases. We have shown previously that PlaC is the major GCAT secreted by L. pneumophila and that the zinc metalloproteinase ProA is essential for GCAT activity. Here we characterized the mode of PlaC GCAT activation and determined that ProA directly processes PlaC. We further found that not only cholesterol but also ergosterol present in protozoa was palmitoylated by PlaC. Such ester formations were not induced by either PlaA or PlaD. PlaD was shown here to possess lysophospholipase A activity, and interestingly, all three GDSL enzymes transferred short chain fatty acids to sterols. The three single putative catalytic amino acids (Ser-37, Asp-398, and His-401) proved essential for all PlaC-associated PLA, lysophospholipase A, and GCAT activities. A further four cysteine residues are important for the PLA/GCAT activities as well as their oxidized state, and we therefore conclude that PlaC likely forms at least one disulfide loop. Analysis of cleavage site and loop deletion mutants suggested that for GCAT activation deletion of several amino acids within the loop is necessary rather than cleavage at a single site. Our data therefore suggest a novel enzyme inhibition/activation mechanism where a disulfide loop inhibits PlaC GCAT activity until the protein is exported to the external space where it is ProA-activated.