Tumor necrosis factor (TNF) and interleukin-1 (IL-1) are cytokines with pleiotropic biological activities, exerting a broad range of overlapping biological functions. The redundancy of TNF and IL-1 activities may be based on the utilization of shared key components of intracellular signaling pathways. Two lipid second messengers have been found to transmit TNF and IL-1 intracellular signals: 1,2-diacylglycerol (DAG), generated by a phosphatidylcholine-specific phospholipase C, and ceramide, generated by sphingomyelinase (SMase). DAG is a well established activator of the important signaling system protein kinase C (PKC), which appears to mediate various cellular responses to TNF or IL-1. In addition, it is obvious that DAG also activates other enzyme systems like acidic sphingomyelinase. SMases have been implicated in a number of TNF responses, including stimulation of cell growth and differentiation, as well as triggering cytotoxicity and apoptosis. The metabolic active cleavage product of SMase, ceramide, is a novel multifunctional lipid second messenger capable of inducing various signaling systems. Both cytokines, TNF and IL-1, stimulate a neutral,plasma membrane-associated SMase that leads to stimulation of a protein kinase and eventually to activation of the mitogen-activated protein (MAP) kinase cascade and phospholipase A2. Ceramide is also capable of stimulating a cytosolic protein phosphatase. PKC plays a role in activation of the nuclear transcription factor AP-1, and the DAG-regulated acidic SMase is involved in transducing TNF signals to the cell nucleus via activation of the nuclear transcription factor NF-kappa B.