The sphingomyelin (SM) pathway is a ubiquitous, evolutionarily conserved signalling system analogous to conventional systems such as the cAMP and phosphoinositide pathways. Ceramide, which serves as second messenger in this pathway, is generated from SM by the action of a neutral or acidic SMase, or by de novo synthesis co-ordinated through the enzyme ceramide synthase. A number of direct targets for ceramide action have now been identified, including ceramide-activated protein kinase, ceramide-activated protein phosphatase and protein kinase Czeta, which couple the SM pathway to well defined intracellular signalling cascades. The SM pathway induces differentiation, proliferation or growth arrest, depending on the cell type. Very often, however, the outcome of signalling through this pathway is apoptosis. Mammalian systems respond to diverse stresses with ceramide generation, and recent studies show that yeast manifest a form of this response. Thus ceramide signalling is an older stress response system than the caspase/apoptotic death pathway, and hence these two pathways must have become linked later in evolution. Signalling of the stress response through ceramide appears to play a role in the development of human diseases, including ischaemia/reperfusion injury, insulin resistance and diabetes, atherogenesis, septic shock and ovarian failure. Further, ceramide signalling mediates the therapeutic effects of chemotherapy and radiation in some cells. An understanding of the mechanisms by which ceramide regulates physiological and pathological events in specific cells may provide new targets for pharmacological intervention.