Recent investigations have identified a signal-transduction system involving sphingomyelin and derivatives. In this paradigm, sphingomyelin hydrolysis by a sphingomyelinase generates ceramide, which may be converted to the protein kinase C inhibitor sphingosine or to ceramide 1-phosphate. Ceramide may have second-messenger function because it induces epidermal growth factor receptor phosphorylation, presumably on Thr-669 in A-431 cells. The present studies describe a kinase that may mediate ceramide action. With a 19-amino acid epidermal growth factor receptor peptide containing Thr-669, a membrane-bound activity that phosphorylated the peptide was detected in A-431 cells. Activity was linearly related to ATP (0.3-300 microM) and peptide concentration (0.02-1 mg/ml), possessed a physiologic pH optimum (pH 7.0-7.4), and was Mg(2+)-dependent. Other cations--Ca2+, Mn2+, and Zn(2+)--were ineffective. Natural and synthetic ceramide induced time- and concentration-dependent enhancement of kinase activity. Ceramide (0.5 microM) increased kinase activity 2-fold by 30 s, and activity remained elevated for at least 15 min. As little as 0.001 microM ceramide was effective, and 1 microM ceramide induced maximal phosphorylation. Sphingosine was similarly effective. Because tumor necrosis factor (TNF) alpha rapidly induces sphingomyelin hydrolysis to ceramide during monocytic differentiation of HL-60 cells, its effects on kinase activity were assessed. Kinase activity was increased 1.5-fold at 5 min and 2-fold at 2 hr in membranes derived from TNF-stimulated cells. The effective concentration range was 3 pM-30 nM TNF. Exogenous ceramide induced a similar effect. In sum, these studies demonstrate the existence of an unusual Mg(2+)-dependent ceramide-activated protein kinase that may mediate some aspects of TNF-alpha function.