Fatty acyl esters of phytosterols are a major form of sterol conjugates distributed in many parts of plants. In this study we report an Arabidopsis (Arabidopsis thaliana) gene, AtSAT1 (At3g51970), which encodes for a novel sterol O-acyltransferase. When expressed in yeast (Saccharomyces cerevisiae), AtSAT1 mediated production of sterol esters enriched with lanosterol. Enzyme property assessment using cell-free lysate of yeast expressing AtSAT1 suggested the enzyme preferred cycloartenol as acyl acceptor and saturated fatty acyl-Coenyzme A as acyl donor. Taking a transgenic approach, we showed that Arabidopsis seeds overexpressing AtSAT1 accumulated fatty acyl esters of cycloartenol, accompanied by substantial decreases in ester content of campesterol and beta-sitosterol. Furthermore, fatty acid components of sterol esters from the transgenic lines were enriched with saturated and long-chain fatty acids. The enhanced AtSAT1 expression resulted in decreased level of free sterols, but the total sterol content in the transgenic seeds increased by up to 60% compared to that in wild type. We conclude that AtSAT1 mediates phytosterol ester biosynthesis, alternative to the route previously described for phospholipid:sterol acyltransferase, and provides the molecular basis for modification of phytosterol ester level in seeds.