Neutral sphingomyelinase 2 (nSMase2) upregulation was recently demonstrated to serve as a molecular link between smoke inhalation and emphysematous changes in lungs. Here we report that nSMase2 deficit impairs lung development in mice. We have shown previously that fragilitas ossium (fro) mice carry a mutation in the Smpd3 gene, rendering nSMase2 catalytically inactive. Analysis of lung phenotype revealed that fro mice have abnormally enlarged alveoli and increased compliance of the respiratory system, similar to morphological and functional manifestations of emphysema. Analysis of sphingolipid content in fro lungs revealed a decreased level of C14:0 ceramide but no significant alterations in the levels of sphingosine or sphingosine-1-phosphate. Altogether, our data suggest that nSMase2 activity and ceramide level are critical for lung development and function. Based on our data, ceramide can no longer be viewed as a lipid solely detrimental to lung function.