The Drosophila Swiss cheese (sws) mutant is characterized by progressive degeneration of the adult nervous system, glial hyperwrapping, and neuronal apoptosis. The Swiss cheese protein (SWS) shares 39% sequence identity with human neuropathy target esterase (NTE), and a brain-specific deletion of SWS/NTE in mice causes a similar pattern of progressive neuronal degeneration. NTE reacts with organophosphate compounds that cause a paralyzing axonal degeneration in humans and has been shown to degrade endoplasmic reticulum-associated phosphatidylcholine (PtdCho) in cultured mammalian cells. However, its function within the nervous system has remained unknown. Here, we show that both the fly and mouse SWS proteins can rescue the defects that arise in sws mutant flies, whereas a point mutation in the proposed active site cannot restore SWS function. Overexpression of catalytically active SWS caused formation of abnormal intracellular membraneous structures and cell death. Cell-specific expression revealed that not only neurons but also glia depend autonomously on SWS. In wild-type flies, endogenous SWS was detected by immmunohistochemistry in the endoplasmic reticulum (the primary site of PtdCho processing) of neurons and in some glia. sws mutant flies lacked NTE-like esterase activity and had increased levels of PtdCho. Conversely, overexpression of SWS resulted in increased esterase activity and reduced PtdCho. We conclude that SWS is essential for membrane lipid homeostasis and cell survival in both neurons and glia of the adult Drosophila brain and that NTE may play an analogous role in vertebrates.