Neuropathy target esterase (NTE) is a member of the family of patatin-domain containing proteins and exhibits phospholipase activity in brain and cultured cells. NTE was originally identified as target enzyme for organophosphorus compounds that cause a delayed paralyzing syndrome with degeneration of nerve axons. Here we show that the structurally related murine protein NTE-related esterase (NRE) is a potent lysophospholipase. The enzyme efficiently hydrolyzes sn-1 esters in lysophosphatidylcholine and lysophosphatidic acid. No lipase activity was observed when triacylglycerols, cholesteryl esters, retinyl esters, phosphatidylcholine or monoacylglycerol were used as substrates. Although NTE is predominantly expressed in the nervous system, we found the highest NRE mRNA levels in testes, skeletal muscle, cardiac muscle, and adipose tissue. Induction of NRE mRNA concentrations in these tissues during fasting suggested a nutritional regulation of enzyme expression and, in accordance with this observation, insulin reduced NRE mRNA levels in a dose dependent manner in 3T3-L1 adipocytes. A green fluorescent protein-NRE fusion protein colocalized to the endoplasmic reticulum and lipid droplets. Thus, NRE is a previously unrecognized ER- and lipid droplet-associated lysophospholipase. Regulation of enzyme expression by the nutritional status and insulin suggests a role of NRE in the catabolism of lipid precursors and/or mediators that affect energy metabolism in mammals.