We have previously shown that interleukin-1 receptor-generated ceramide induces growth arrest in smooth muscle pericytes by inhibiting an upstream kinase in the extracellular signal-regulated kinase (ERK) cascade. Here, we now report the mechanism by which ceramide inhibits ERK activity. Ceramide renders the human embryonic kidney 293 cells (HEK 293) resistant to the mitogenic actions of growth factors and activators of protein kinase C (PKC). A role for PKC to mediate ceramide inhibition of growth factor-induced ERK activity and mitogenesis is suggested, as exogenous ceramide directly inhibits both immunoprecipitated and recombinant PKC-ε activities. To confirm that PKC-ε is necessary for ceramide-inhibited ERK activity, HEK 293 cells were transfected with a dominant-negative mutant of PKC-ε (ΔPKC-ε). These transfected cells respond to insulin-like growth factor I (IGF-I) with a significantly decreased ERK activity that is not further reduced by ceramide treatment. Coimmunoprecipitation studies reveal that the treatment with IGF-I induces the association of ERK with PKC-ε but not with PKC-ζ. Ceramide treatment significantly inhibits the IGF-I-induced PKC-ε interaction with bioactive phosphorylated ERK. Ceramide also inhibits IGF-I-induced PKC-ε association with Raf-1, an upstream kinase of ERK. Together, these studies demonstrate that ceramide exerts anti-mitogenic actions by limiting the ability of PKC-ε to form a signaling complex with Raf-1 and ERK.