The downregulation of Cadm4 (Cell adhesion molecular 4) is a prominent feature in demyelination diseases, yet, the underlying molecular mechanism remains elusive. Here, we reveal that Cadm4 undergoes specific palmitoylation at cysteine-347 (C347), which is crucial for its stable localization on the plasma membrane (PM). Mutation of C347 to alanine (C347A), blocking palmitoylation, causes Cadm4 internalization from the PM and subsequent degradation. In vivo experiments introducing the C347A mutation (Cadm4-KI) lead to severe myelin abnormalities in the central nervous system (CNS), characterized by loss, demyelination, and hypermyelination. We further identify ZDHHC3 (Zinc finger DHHC-type palmitoyltransferase 3) as the enzyme responsible for catalyzing Cadm4 palmitoylation. Depletion of ZDHHC3 reduces Cadm4 palmitoylation and diminishes its PM localization. Remarkably, genetic deletion of ZDHHC3 results in decreased Cadm4 palmitoylation and defects in CNS myelination, phenocopying the Cadm4-KI mouse model. Consequently, altered Cadm4 palmitoylation impairs neuronal transmission and cognitive behaviors in both Cadm4-KI and ZDHHC3 knockout mice. Importantly, attenuated ZDHHC3-Cadm4 signaling significantly influences neuroinflammation in diverse demyelination diseases. Mechanistically, we demonstrate the predominant expression of Cadm4 in the oligodendrocyte lineage and its potential role in modulating cell differentiation via the WNT-β-Catenin pathway. Together, our findings propose that dysregulated ZDHHC3-Cadm4 signaling contributes to myelin abnormalities, suggesting a common pathological mechanism underlying demyelination diseases associated with neuroinflammation.© 2024. The Author(s).