In eukaryotes, sphingolipids (SLs) are important membrane components and powerful signaling molecules. In Leishmania, the major group of SLs is inositol phosphorylceramide (IPC), which is common in yeast and Trypanosomatids but absent in mammals. In contrast, sphingomyelin is not synthesized by Leishmania but is abundant in mammals. In the promastigote stage in vitro, Leishmania use SL metabolism as a major pathway to produce ethanolamine (EtN), a metabolite essential for survival and differentiation from non-virulent procyclics to highly virulent metacyclics. To further probe SL metabolism, we identified a gene encoding a putative neutral sphingomyelinase (SMase) and/or IPC hydrolase (IPCase), designated ISCL (Inositol phosphoSphingolipid phospholipase C-Like). Despite the lack of sphingomyelin synthesis, L. major promastigotes exhibited a potent SMase activity which was abolished upon deletion of ISCL, and increased following over-expression by episomal complementation. ISCL-dependent activity with sphingomyelin was about 20 fold greater than that seen with IPC. Null mutants of ISCL (iscl−) showed modest accumulation of IPC, but grew and differentiated normally in vitro. Interestingly, iscl− mutants did not induce lesion pathology in the susceptible BALB/c mice, yet persisted indefinitely at low levels at the site of infection. Notably, the acute virulence of iscl− was completely restored by the expression of ISCL or heterologous mammalian or fungal SMases, but not by fungal proteins exhibiting only IPCase activity. Together, these findings strongly suggest that degradation of host-derived sphingomyelin plays a pivotal role in the proliferation of Leishmania in mammalian hosts and the manifestation of acute disease pathology.