Stimulation of [3H]serine-labeled A431 cells with tumor necrosis factor-alpha (TNFalpha) or bacterial sphingomyelinase (SMase) resulted in a rapid decrease (approximately 50% by 15 min) in cellular [3H]sphingomyelin content and generation of the lipid moiety [3H]ceramide, which remained elevated 60 min later. Sphingomyelin hydrolysis in response to TNFalpha or bacterial SMase resulted in a time-dependent decrease in the phosphorylation state of c-Jun protein, an effect that was also observed in cells treated with the membrane-permeable ceramide analogue N-hexanoylsphingosine (C6-ceramide). The rapid dephosphorylation of the c-Jun gene product in response to TNFalpha, SMase, or C6-ceramide was not observed in A431 cells treated with the serine-threonine phosphatase inhibitor okadaic acid. After the initial steps of previously described methods for the purification of a ceramide-activated protein phosphatase termed CAPP (Dobrowsky, R. T., Kamibayashi, C., Mumby, M. C., and Hannun, Y. A. (1993) J. Biol. Chem. 268, 15523-15530), we obtained a cytosolic fraction from A431 cells that specifically dephosphorylated 32Pi-labeled c-Jun protein used as substrate in an immunocomplex phosphatase assay. Phosphatase activity in vitro was apparent only in the presence of ceramide (5 micro) and was specifically abrogated when okadaic acid (1 n) was included in the immunocomplex phosphatase assay. These results provide strong evidence for c-Jun as a downstream target for CAPP activated in response to post-TNF signaling in A431 cells.