After damage, cells reseal their plasma membrane and repair the underlying cortical cytoskeleton. Although many different proteins have been implicated in cell repair, the potential role of specific lipids has not been explored. Here we report that cell damage elicits rapid formation of spatially organized lipid domains around the damage site, with different lipids concentrated in different domains as a result of both de novo synthesis and transport. One of these lipids—diacylglycerol (DAG)—rapidly accumulates in a broad domain that overlaps the zones of active Rho and Cdc42, GTPases that regulate repair of the cortical cytoskeleton. Formation of the DAG domain is required for Cdc42 and Rho activation and healing. Two DAG targets, protein kinase C (PKC) β and η, are recruited to cell wounds and play mutually antagonistic roles in the healing process: PKCβ participates in Rho and Cdc42 activation, whereas PKCη inhibits Rho and Cdc42 activation. The results reveal an unexpected diversity in subcellular lipid domains and the importance of such domains for a basic cellular process.