PE and PPE proteins appear to be important for virulence and immunopathogenicity in mycobacteria, yet the functions of the PE/PPE domains remain an enigma. To decipher the role of these domains, we have characterized the triacylglycerol (TAG) hydrolase LipY from Mycobacterium tuberculosis, which is the only known PE protein expressing an enzymatic activity. The overproduction of LipY in mycobacteria resulted in a significant reduction in the pool of TAGs, consistent with the lipase activity of this enzyme. Unexpectedly, this reduction was more pronounced in mycobacteria overexpressing LipY lacking the PE domain [LipY(PE)], suggesting that the PE domain participates in the modulation of LipY activity. Interestingly, Mycobacterium marinum contains a protein homologous to LipY, termed LipYmar, in which the PE domain is substituted by a PPE domain. As for LipY, overexpression of LipYmar in Mycobacterium smegmatis significantly reduced the TAG pool, and this was further pronounced when the PPE domain of LipYmar was removed. Fractionation studies and Western blot analysis demonstrated that both LipY and LipY(PE) were mainly present in the cell wall, indicating that the PE domain was not required for translocation to this site. Furthermore, electron microscopy immunolabeling of LipY(PE) clearly showed a cell surface localization, thereby suggesting that the lipase may interact with the host immune system. Accordingly, a strong humoral response against LipY and LipY(PE) was observed in tuberculosis patients. Together, our results suggest for the first time that both PE and PPE domains can share similar functional roles and that LipY represents a novel immunodominant antigen.