Glucocorticoids appear to play an integral role in stimulating surfactant synthesis by activating the rate-regulatory enzyme for phosphatidylcholine synthesis, CTP:cholinephosphate cytidylyltransferase (CT). The activity of liver CT, in vitro, has been shown to be inhibited by the sphingomyelin hydrolysis product, sphingosine. In order to investigate the mechanisms by which glucocorticoids alter CT activity, in vivo, we administered betamethasone (1 mg/kg intraperitoneally) sequentially to adult male rats for 5 days. Betamethasone increased CT activity 2-fold relative to control in whole lung. The hormone also increased membrane-bound activity, but did not affect cytosolic enzyme activity. Betamethasone modestly increased CT mRNA as determined by the reverse-transcription PCR and Southern analysis of PCR products, but did not alter the levels of immunoreactive enzyme in lung membranes as demonstrated by Western blotting. The hormone did, however, produce a nearly 3-fold increase in membrane-associated sphingomyelin, and co-ordinately a substantial decrease in the levels of sphingosine in lung membranes. Sphingosine, but not sphinganine, was a competitive, reversible inhibitor of lung CT with respect to the enzyme activator, phosphatidylglycerol. Betamethasone decreased the activities of the sphingomyelin hydrolases: acid sphingomyelinase by 33% and of alkaline ceramidase by 21%. The hormone also inhibited the generation of sphingosine from lysosphingomyelin in lung membranes. There was no significant effect of the hormone on serine palmitoyltransferase activity, the first committed enzyme for sphingolipid biosynthesis. Further, administration of L-cycloserine, an inhibitor of sphingosine formation, was shown to stimulate CT activity by 74% and increase disaturated phosphatidylcholine in alveolar lavage by 52% relative to control. These observations suggest that glucocorticoids up-regulate surfactant synthesis at the level of a key regulatory enzyme by significantly altering the availability of inhibitory metabolites resulting from sphingomyelin hydrolysis.