Perilipin (PLIN1) is a constitutive adipocyte lipid droplet coat protein. N-terminal amphipathic helices and central hydrophobic stretches are thought to anchor it on the lipid droplet, where it appears to function as a scaffold protein regulating lipase activity. We recently identified two different C-terminal PLIN1 frame shift mutations (Leu-404fs and Val-398fs) in patients with a novel subtype of partial lipodystrophy, hypertriglyceridemia, severe insulin resistance, and type 2 diabetes (Gandotra, S., Le Dour, C., Bottomley, W., Cervera, P., Giral, P., Reznik, Y., Charpentier, G., Auclair, M., Delépine, M., Barroso, I., Semple, R. K., Lathrop, M., Lascols, O., Capeau, J., O'Rahilly, S., Magré, J., Savage, D. B., and Vigouroux, C. (2011) N. Engl. J. Med. 364, 740–748.) When overexpressed in preadipocytes, both mutants fail to inhibit basal lipolysis. Here we used bimolecular fluorescence complementation assays to show that the mutants fail to bind ABHD5, permitting its constitutive coactivation of ATGL, resulting in increased basal lipolysis. siRNA-mediated knockdown of either ABHD5 or ATGL expression in the stably transfected cells expressing mutant PLIN1 reduced basal lipolysis. These insights from naturally occurring human variants suggest that the C terminus sequesters ABHD5 and thus inhibits basal ATGL activity. The data also suggest that pharmacological inhibition of ATGL could have therapeutic potential in patients with this rare but metabolically serious disorder.