Diacylglycerol is necessary for trans-Golgi network (TGN) to cell surface transport, but its functional relevance in the early secretory pathway is unclear. Although depletion of diacylglycerol did not affect ER-to-Golgi transport, it led to a redistribution of the KDEL receptor to the Golgi, indicating that Golgi-to-ER transport was perturbed. Electron microscopy revealed an accumulation of COPI-coated membrane profiles close to the Golgi cisternae. Electron tomography showed that the majority of these membrane profiles originate from coated buds, indicating a block in membrane fission. Under these conditions the Golgi-associated pool of ARFGAP1 was reduced, but there was no effect on the binding of coatomer or the membrane fission protein CtBP3/BARS to the Golgi. The addition of 1,2-dioctanoyl-sn-glycerol or the diacylglycerol analogue phorbol 12,13-dibutyrate reversed the effects of endogenous diacylglycerol depletion. Our findings implicate diacylglycerol in the retrograde transport of proteins from Golgi to the ER and suggest that it plays a critical role at a late stage of COPI vesicle formation. © 2007 by The American Society for Cell Biology.