The synergistic effects of diacylglycerol (DAG) and fatty acid (FA) in activating protein kinase C have been investigated by correlating their individual and combined effects on enzymatic activity and on membrane structure in phosphatidylcholine/phosphatidylserine (4:1) lipid mixtures using a combination of specific enzymatic assays and 31P and 2H NMR. Addition of DAGs and unsaturated FAs to the bilayers synergistically increased the tendency of the lipids to form nonbilayer phases with a concomitant increase in PKC activity until a maximum was achieved. Further increases in the DAG/FA concentration led to the formation of the nonbilayer lipid phases under the conditions of the PKC activity assays and correlated with decreased activity. The nonbilayer lipid phases still supported PKC activity, although with less than 50% efficiency as compared with the bilayer lipids. Long-chain saturated FA increased DAG-induced PKC activity by causing a lateral phase separation of gel (Lbeta) and liquid-crystalline (Lalpha) domains. Due to the preferential partitioning of DAGs into liquid-crystalline domains, the local DAG concentration increased in these domains, leading to an increase in PKC activity. Because a wide range of lipophilic compounds is capable of altering curvature stress, and therefore the tendency for nonbilayer phase formation in cellular membranes, these compounds would be expected to modulate PKC activity and the activities of a number of other membrane-associated enzymes that are sensitive to biophysical properties of lipid membranes.