AAM-B is a putative methyltransferase that is a resident protein of lipid droplets. We have identified an N-terminal 28 amino acid hydrophobic sequence that is necessary and sufficient for targeting the protein to droplets. This sequence will also insert AAM-B into the endoplasmic reticulum (ER). A similar hydrophobic sequence (1-23) in the cytochrome p450 2C9 cannot substitute for 1-28 and only inserts AAM-B into the ER, which indicates that hydrophobicity and ER anchoring are not sufficient to reach the droplet. We found that a similar N-terminal hydrophobic sequence in cytochrome b5 reductase 3 and ALDI could also heterologously target proteins to droplets. Targeting is not affected by changing a conserved proline residue that potentially facilitates the formation of a hairpin loop to leucine. By contrast, targeting is blocked when AAM-B amino acids 59-64 or 65-70, situated downstream of the hydrophobic sequence, are changed to alanines. AAM-B-GFP expressed in Saccharomyces cerevisiae is also faithfully targeted to lipid bodies, indicating that the targeting mechanism is evolutionarily conserved. In conclusion, a class of hydrophobic sequences exists that when placed at the N-terminus of a protein will cause it to accumulate in droplets and in the ER.