Ceramide is an intracellular lipid mediator generated through the sphingomyelin cycle in response to several extracellular signals. Ceramide has been shown to induce growth inhibition, c-myc downmodulation and apoptosis. In this paper we examined the mechanism by which ceramide induces growth suppression and the role of the G1-CDK/pRb/E2F pathway in this process. The addition of exogenous, cell-permeable C2-ceramide to the Hs 27 human diploid fibroblast cell line resulted in a dose-dependent induction of the p21WAF1/CIP1/Sdi1 kinase inhibitor with reduction of cyclin-D1 associated kinase activity. Furthermore, significant dephosphorylation of pRb was observed, with increased association of pRb and the E2F transcription factor into a transcriptionally inactive complex. Ceramide was also capable of inhibiting the transcriptional activity of a CAT reporter vector driven by E2F binding sites containing c-myc promoter transfected into Hs 27 cells. The requirement of the pRb protein for ceramide-induced c-myc downregulation was supported by the failure of ceramide to inhibit promoter activity in HeLa cells, in which pRb function is abrogated by the presence of the E7 Papilloma virus oncoprotein, and in pRb-deleted SAOS2 AT cells. Ceramide-induced downregulation of the c-myc promoter was restored in SAOS2 #1 cells in which a functional Rb gene was reintroduced. Our studies demonstrate that pRb dephosphorylation, induced by ceramide, is at least partly necessary for c-myc downregulation, and therefore the CDK-Rb-E2F pathway appears to be a target for the ceramide-induced modulation of cell cycle regulated gene transcription.