The sphingomyelin pathway is a newly described signal transduction pathway mediating the action of several cytokines including tumor necrosis factor-α (TNF). TNF was recently shown to interfere with insulin-induced tyrosine phosphorylation of the insulin receptor substrate-1 (IRS-1). In this work we examined the possible effect of direct activation of the sphingomyelin pathway on insulin-induced tyrosine phosphorylation of IRS-1. Incubation of the insulin-sensitive rat hepatoma Fao cells with bacterial sphingomyelinase (SMase) that causes membrane hydrolysis of sphingomyelin led to a time- and dose-dependent decrease in insulin-induced tyrosine phosphorylation of IRS- 1. The effect was apparent after 10 min of incubation and with a dose of 10 milliunits/ml SMase. It was not associated with a decrease in insulin receptor autophosphorylation. In addition, SMase treatment interrupted the association of the 85-kDa catalytic subunit of phosphatidylinositol 3-kinase with IRS-1. A similar impact on IRS-1 tyrosine phosphorylation was observed after addition of cell-permeable ceramide analogs (C2 and C6). Comparable changes in IRS-1 tyrosine phosphorylation and electrophoretic mobility were found after exposure of cells to either TNF, SMase, or ceramide. Our findings suggest that TNF may utilize the sphingomyelin pathway in its effect on the insulin-stimulated tyrosine phosphorylation of IRS-1.