The Golgi complex serves as the central hub of the biosynthetic pathway, where anterograde and retrograde trafficking converge. How cargo and Golgi-resident proteins traverse this organelle has long been debated. Recent studies have identified a molecular machinery that sorts resident proteins into retrograde-directed COPI vesicles during cisternal maturation. Golgi phosphoprotein 3 (GOLPH3) is a key component of this system; however, its physiological relevance and regulatory mechanisms remain poorly defined. Here, we show that GOLPH3 depletion in mice disrupts both protein and lipid glycosylation, causes partially penetrant embryonic lethality, and severely impairs growth and bone mineralization. At the molecular level, we find that GOLPH3 is regulated by functionally antagonistic S-acylation events that control the topology of its membrane association. To mediate retrograde trafficking of Golgi-resident glycosyltransferases, GOLPH3 must bind their cytosolic tails. This occurs via a negatively charged surface region, which is correctly oriented only in one of the S-acylated GOLPH3 conformations. Together, these findings reveal a lipid-mediated regulatory mechanism for intra-Golgi trafficking and establish the critical role of GOLPH3 in vertebrate development.