Breakdown of plasma-membrane sphingomyelin caused by TNF-alpha is known to inhibit glucose metabolism and insulin signalling in muscle and fat cells. In hepatocytes, conversion of glucose to glycogen is strongly activated by amino acid-induced cell swelling. In order to find out whether breakdown of plasma-membrane sphingomyelin also inhibits this insulin-independent process, the effect of addition of sphingomyelinase was studied in rat hepatocytes. Sphingomyelinase (but not ceramide) inhibited glycogen synthesis, caused cell shrinkage, decreased the activity of glycogen synthase a, but had no effect on phosphorylase a. Cell integrity was not affected by sphingomyelinase addition as gluconeogenesis and the intracellular concentration of ATP were unchanged. As a control, glycogen synthesis was studied in HepG2 cells. In these cells, the basal rate of glycogen production was high, could not be stimulated by amino acids, nor be inhibited by sphingomyelinase. Regarding the mechanism responsible for the inhibition of glycogen synthase a, sphingomyelinase did not affect amino acid-induced, PtdIns 3-kinase-dependent, phosphorylation of p70S6 kinase, but caused an increase in intracellular chloride, which is known to inhibit glycogen synthase phosphatase. It is concluded that the decrease in cell volume, following the breakdown of sphingomyelin in the plasma membrane of the hepatocyte, may contribute to the abnormal metabolism of glucose when TNF-alpha levels are high.