Tumor necrosis factor (TNF)-alpha signals cell death and simultaneously induces the generation of ceramide, which is metabolized to sphingosine and sphingosine 1-phosphate (S1P) by ceramidase (CDase) and sphingosine kinase. Because the dynamic balance between the intracellular levels of ceramide and S1P (the "ceramide/S1P rheostat") may determine cell survival, we investigated these sphingolipid signaling pathways in TNF-alpha-induced apoptosis of primary hepatocytes. Endogenous C16-ceramide was elevated during TNF-alpha-induced apoptosis in both rat and mouse primary hepatocytes. The putative acid sphingomyelinase (ASMase) inhibitor imipramine inhibited TNF-alpha-induced apoptosis and C16-ceramide increase as did the knock out of ASMase. Overexpression of neutral CDase (NCDase) inhibited the TNF-alpha-induced increase of C16-ceramide and apoptosis in rat primary hepatocytes. Moreover, NCDase inhibited liver injury and hepatocyte apoptosis in mice treated with D-galactosamine plus TNF-alpha. This protective effect was abrogated by the sphingosine kinase inhibitor N,N-demethylsphingosine, suggesting that the survival effect of NCDase is due to not only C16-ceramide reduction but also S1P formation. Administration of S1P or overexpression of NCDase activated the pro-survival kinase AKT, and overexpression of dominant negative AKT blocked the survival effect of NCDase. In conclusion, activation of ASMase and generation of C16-ceramide contributed to TNF-alpha-induced hepatocyte apoptosis. NCDase prevented apoptosis both by reducing C16-ceramide and by activation of AKT through S1P formation. Therefore, the cross-talk between sphingolipids and AKT pathway may determine hepatocyte apoptosis by TNF-alpha.