Tumor necrosis factor (TNF) signals cell death and simultaneously induces generation of ceramide. To evaluate the contribution of ceramide to TNF-dependent cell death, we generated clones of the TNF-sensitive cell line L929 that constitutively overexpress human acid ceramidase (AC). Ceramidase, in concert with sphingosine kinase, metabolizes ceramide to sphingosine-1-phosphate (SPP), an inducer of proliferation. In response to TNF, parental L929 cells display a significant increase in intracellular ceramide correlated with an “atypical apoptosis” characterized by membrane blebbing, DNA fragmentation and degradation of poly(ADP-ribose) polymerase despite a lack of caspase activity. These features are strongly reduced or absent in AC-overexpressing cells. Pharmacological suppression of AC with N-oleoylethanolamine restored the accumulation of intracellular ceramide as well as the sensitivity of the transfectants to TNF, implying that an enhanced metabolization of intracellular ceramide by AC shifts the balance between intracellular ceramide and SPP levels towards cell survival. Correspondingly, inhibition of ceramide production by acid sphingomyelinase also increased survival of TNF-treated L929 cells.