Ceramide is a lipid second messenger derived from the hydrolysis of sphingomyelin by sphingomyelinases (SMases) and implicated in diverse cellular responses, including growth arrest, differentiation, and apoptosis. Defects in the neutral SMase (nSMase) gene Smpd3, the primary regulator of ceramide biosynthesis, are responsible for developmental defects of bone; regulation of ceramide levels have been implicated in macrophage differentiation, but this pathway has not been directly implicated in human cancer. In a genomic screen for gene copy losses contributing to tumorigenesis in a mouse osteosarcoma model, we identified a somatic homozygous deletion specifically targeting Smpd3. Reconstitution of SMPD3 expression in mouse tumor cells lacking the endogenous gene enhanced tumor necrosis factor (TNF)-induced reduction of cell viability. Nucleotide sequencing of the highly conserved SMPD3 gene in a large panel of human cancers revealed mutations in 5 (5%) of 92 acute myeloid leukemias (AMLs) and 8 (6%) of 131 acute lymphoid leukemias (ALLs), but not in other tumor types. In a subset of these mutations, functional analysis indicated defects in protein stability and localization. Taken together, these observations suggest that disruption of the ceramide pathway may contribute to a subset of human leukemias.