The sphingomyelin pathway is a new signal transduction system initiated by hydrolysis of plasma membrane sphingomyelin to ceramide by the actin of a neutral sphingomyelinase. Ceramide serine/threonine protein kinase termed ceramide-activated protein kinase. This kinase belongs to a family of proline-directed protein kinases that recognize substrates containing the minimal motif, X-Thr/Ser-Pro-X, where the phosphoacceptor site is followed on the carboxyl terminus by a proline residue and X may be any amino acid. Three lines of evidence, rapid kinetics of activation of the sphingomyelin pathway by tumor necrosis factor (TNF) alpha, the ability of cell-permeable ceramide analogs to bypass receptor activation and mimic the effect of TNF alpha, and reconstitution of this cascade in a cell-free system, support the concept that the sphingomyelin pathway serves to signal TNF alpha-induced monocytic differentiation. Hence, the sphingomyelin pathway may represent a signaling system analogous to more well-defined systems such as the cyclic adenosine monophosphate and phosphoinositide pathways.