The unfolded protein response (UPR) is induced by proteotoxic stress of the endoplasmic reticulum (ER). Here we report that ATF6, a major mammalian UPR sensor, is also activated by specific sphingolipids, dihydrosphingosine (DHS) and dihydroceramide (DHC). Single mutations in a previously undefined transmembrane domain motif that we identify in ATF6 incapacitate DHS/DHC activation while still allowing proteotoxic stress activation via the luminal domain. ATF6 thus possesses two activation mechanisms: DHS/DHC activation and proteotoxic stress activation. Reporters constructed to monitor each mechanism show that phenobarbital-induced ER membrane expansion depends on transmembrane domain-induced ATF6. DHS/DHC addition preferentially induces transcription of ATF6 target lipid biosynthetic and metabolic genes over target ER chaperone genes. Importantly, ATF6 containing a luminal achromatopsia eye disease mutation, unresponsive to proteotoxic stress, can be activated by fenretinide, a drug that upregulates DHC, suggesting a potential therapy for this and other ATF6-related diseases including heart disease and stroke.