The goal of this study was to elucidate whether triggering the sphingomyelin pathway modulates LPS-initiated responses. For this purpose we investigated the effects of N-acetylsphingosine (C2-ceramide) on LPS-induced production of NO and PGE2 in murine RAW 264.7 macrophages and explored the signaling pathways involved. We found that within a range of 10–50 μM, C2-ceramide inhibited LPS-elicited NO synthase and cyclooxygenase-2 induction accompanied by a reduction in NO and PGE2 formation. By contrast, a structural analog of C2-ceramide that does not elicit functional activity, C2-dihydroceramide, did not affect the LPS response. The nuclear translocation and DNA binding study revealed that ceramide can inhibit LPS-induced NF-κB and AP-1 activation. The immunocomplex kinase assay indicated that IκB kinase activity stimulated by LPS was inhibited by ceramide, which concomitantly reduced the IκBα degradation caused by LPS within 1–6 h. In concert with the decreased cytosolic p65 protein level, LPS treatment resulted in rapid nuclear accumulation of NF-κB subunit p65 and its association with the cAMP-responsive element binding protein. Ceramide coaddition inhibited all the LPS responses. In addition, LPS-induced PKC and p38 mitogen-activated protein kinase activation were overcome by ceramide. In conclusion, we suggest that ceramide inhibition of LPS-mediated induction of inducible NO synthase and cyclooxygenase-2 is due to reduction of the activation of NF-κB and AP-1, which might result from ceramide’s inhibition of LPS-stimulated IκB kinase, p38 mitogen-activated protein kinase, and protein kinase C.