Sphingolipids containing acyl residues that are hydroxylated at C-2 are found in most, if not all, eukaryotes and certain bacteria. 2-hydroxylated sphingolipids are present in many organs and cell types, though they are especially abundant in myelin and skin. The enzyme fatty acid 2-hydroxylase (FA2H) is involved in the synthesis of many but not all 2-hydroxylated sphingolipids. Deficiency in FA2H causes a neurodegenerative disease known as hereditary spastic paraplegia 35 (HSP35/SPG35) or fatty acid hydroxylase-associated neurodegeneration (FAHN). FA2H likely also plays a role in other diseases. A low expression level of FA2H correlates with a poor prognosis in many cancers. This review presents an updated overview of the metabolism and function of 2-hydroxylated sphingolipids and the FA2H enzyme under physiological conditions and in diseases.