The mobilization of stored lipid by hormones is a fundamental function of fat cells, and there is strong evidence that perilipin (Plin), a lipid droplet scaffold, and adipose tissue triglyceride lipase (Atgl), a triglyceride-specific lipase, play critical roles. Previous work suggested that Abhd5, a protein activator of Atgl, coordinates with Plin in controlling basal and stimulated lipolysis; however, the underlying mechanism is controversial. The present experiments investigated protein trafficking and interactions among Plin, Atgl, and Abhd5 in live cells. The results demonstrate that Plin binds Abhd5 with high affinity and thereby suppresses the interaction of Abhd5 with Atgl. Sequestration of Abhd5 appears to a major mechanism by which Plin reduces basal lipolysis. Phosphorylation of Plin on serine 492 or serine 517 rapidly releases Abhd5 from Plin, allowing Abhd5 to directly interact with Atgl. Imaging experiments demonstrated that the Plin-dependent interaction of Abhd5 and Atgl occurs mainly, but not exclusively, on lipid droplets that contain Plin.