Reports suggest that excessive ceramide accumulation in mitochondria is required to initiate the intrinsic apoptotic pathway and subsequent cell death, but how ceramide accumulates is unclear. Here we report that liver mitochondria exhibit ceramide formation from sphingosine and palmitoyl-CoA and from sphingosine and palmitate. Importantly, this activity was markedly decreased in liver from neutral ceramidase (NCDase)-deficient mice. Moreover, the levels of ceramide were dissimilar in liver mitochondria of WT and NCDase KO mice. These results suggest that NCDase is a key participant of ceramide formation in liver mitochondria. We also report that highly purified liver mitochondria have ceramidase, reverse ceramidase, and thioesterase activities. Increased accessibility of palmitoyl-CoA to the mitochondrial matrix with the pore-forming peptide zervamicin IIB resulted in 2-fold increases in palmitoyl-CoA hydrolysis by thioesterase. This increased hydrolysis was accompanied by an increase in ceramide formation, demonstrating that both outer membrane and matrix localized thioesterases can regulate ceramide formation. Also, ceramide formation might occur both in the outer mitochondrial membrane and in the mitochondrial matrix, suggesting the existence of distinct ceramide pools. Taken together, these results suggest that the reverse activity of NCDase contributes to sphingolipid homeostasis in this organelle in vivo.In recent years the sphingolipid ceramide (1) has gained appreciation as a bioactive lipid that modulates apoptotic/necrotic cellular processes (2, 3). Although increased ceramide at the plasma membrane can amplify a primary death signal by clustering receptors in ceramide-rich platforms (4) or indirectly change the ratio/activity of proapoptotic/antiapoptotic members of BCL-2 family proteins at the outer mitochondrial membrane (for review, see Ref. 5), evidence also suggests a direct action of ceramide on mitochondria. Specifically, the selective hydrolysis of mitochondrial sphingomyelin to ceramide by the targeting of bacterial sphingomyelinase to mitochondria results in apoptosis (6). These studies underscore the physiological significance of the mitochondrial ceramide and sphingomyelin pools (7-12). Functionally, ceramides directly suppress respiratory chain activity (13, 14), which is followed by a burst of reactive oxygen species production (15), modulate permeability transition pore activity (16 -21), and permeabilize the mitochondrial outer membrane for cytochrome c acting alone (14,(22)(23)(24)(25) or in cooperation with Bax (26,27). Moreover, many paradigms of cell death triggered by TNF-␣ (15, 28), Fas ligation (29), ischemia/reperfusion (30, 31), etoposide (9), UV (9), and ionizing radiation (29,32,33) are associated with the increase in mitochondrial ceramide, suggesting that this might be a general phenomenon. Given these intimate and direct connections between ceramide and mitochondria, understanding the source and metabolism of ceramides in these organelles is key with respect to basic bio...