Deficiency of the serine hydrolase prolyl endopeptidase-like (PREPL) causes a recessive metabolic disorder characterized by neonatal hypotonia, feeding difficulties, and growth hormone deficiency. The pathophysiology of PREPL deficiency and the physiological substrates of PREPL remain largely unknown. In this study, we connect PREPL with mitochondrial gene expression and oxidative phosphorylation by analyzing its protein interactors. We demonstrate that the long PREPL_L isoform localizes to mitochondria, whereas PREPL_S remains cytosolic. Prepl KO mice showed reduced mitochondrial complex activities and disrupted mitochondrial gene expression. Furthermore, mitochondrial ultrastructure was abnormal in a PREPL-deficient patient and Prepl KO mice. In addition, we reveal that PREPL has (thio)esterase activity and inhibition of PREPL by Palmostatin M suggests a depalmitoylating function. We subsequently determined the crystal structure of PREPL, thereby providing insight into the mechanism of action. Taken together, PREPL is a (thio)esterase rather than a peptidase and PREPL_L is involved in mitochondrial homeostasis.