Sphingomyelin (SM) and free cholesterol (FC) are concentrated in the plasma membranes of eukaryotes; however, the physiological significance of their association is unclear. A common tool for studying the role of membrane SM is digestion with bacterial sphingomyelinase (SMase) C, which hydrolyzes SM to ceramide. However, it is not known whether the observed effects of SMase C treatment are due to the loss of SM per se or to the signaling effects of ceramide. In this study, we tested SMase D from Corynebacterium pseudotuberculosis, which hydrolyzes SM to ceramide phosphate, as an alternative probe. This enzyme specifically hydrolyzed SM in fibroblasts without causing accumulation of ceramide. Several studies have shown that the bulk of cellular free cholesterol (FC) and sphingomyelin (SM) are localized in the plasma membrane (1-3). These two lipids interact strongly with each other in the membrane through hydrogen bonding and van der Waal's interactions (4, 5). It is therefore not surprising that each influences the intracellular transport and metabolism of the other. For example, depletion of membrane SM by enzymatic degradation leads to a rapid translocation of FC from the plasma membrane to intracellular sites, where it is esterified to cholesteryl ester (CE) by the enzyme acyl-CoA:cholesterol acyltransferase (ACAT) (2, 5, 6). Degradation of membrane SM also dramatically increases the oxidizability of membrane cholesterol by bacterial cholesterol oxidase (7), and blocks the proteolysis of sterol regulatory element binding protein, thereby inhibiting cholesterol biosynthesis (8). Conversely, exogenous addition of SM to human skin fibroblasts stimulates the biosynthesis of cholesterol (9). Ohvo, Olsio, and Slotte (10) reported that SM depletion of fibroblasts results in increased efflux of membrane FC to 2-hydroxypropyl- -cyclodextrin (HPCD). In all these studies, the depletion of membrane SM was achieved by enzymatic degradation using bacterial sphingomyelinase (SMase) C, which hydrolyzes SM to ceramide and phosphorylcholine. Since ceramide is a strong mediator of signal transduction reactions (11-13), it is not clear whether the various effects observed following SMase C treatment are due to the disruption of the SM-cholesterol interaction and the consequent loss of cholesterol from the membrane, or rather to the effects of ceramide on cellular metabolism. A study in Chinese hamster ovary (CHO) cells showed that short-chain ceramides are strong inhibitors of ACAT activity (14). However, natural long-chain ceramides had no effect on the enzyme activity. C2 ceramides have also been reported to inhibit the synthesis of phosphatidylcholine (PC), sphingolipids, and cholesterol in baby hamster kidney cells, whereas the elevation of natural ceramides in the cells had very little effect on lipid synthesis (15). It has been suggested that the generation of ceramide disrupts the membrane bilayer because of the formation of hexagonal II phases (12). Such local phase transitions may cause profound changes in