Acid sphingomyelinase (ASM; E.C. 3.1.4.12) is best known for its involvement in the lysosomal storage disorder Niemann-Pick disease (NPD). Through studies that began by investigating this rare disease, recent findings have uncovered the important role of this enzyme in the initiation of ceramide-mediated signal transduction. This unique function involves translocation of the enzyme from intracellular compartments to the outer leaflet of the cell membrane, where hydrolysis of sphingomyelin into ceramide initiates membrane reorganization and facilitates the formation and coalescence of lipid microdomains. These microdomains are sites of protein-protein interactions that lead to downstream signaling, and perturbation of microdomain formation influences the pathophysiology of many common diseases. The initial observations implicating ASM in this process have come from studies using cells from patients with NPD or from ASM knockout (ASMKO) mice, where the genetic deficiency of this enzymatic activity has been shown to protect these cells and animals from stress-induced and developmental apoptosis. This review will discuss the complex biology of this enzyme in the context of these new findings and its recently reported importance in common human diseases, including cancer, sepsis, cardiovascular, pulmonary, liver, and neurological diseases as well as the potential for using ASM (or ASM inhibitors) as therapeutic agents.