We have previously determined that sustained phospholipase D (PLD) activation is associated with differentiation induction in primary mouse epidermal keratinocytes. We therefore investigated the effect of two bacterial PLD on keratinocyte proliferation and differentiation. We found that Streptomyces sp. PLD was much less potent at inhibiting proliferation than S. chromofuscus PLD, with a half-maximal inhibitory concentration of 0.05 versus less than 0.001 IU per ml for S. chromofuscus PLD. Similarly, S. chromofuscus PLD stimulated transglutaminase activity more effectively and potently than S. sp. PLD. When we examined the formation of products by the two PLD, we found that the S. sp. PLD showed higher activity at all concentrations. Whereas the PLD from S. sp. is relatively inactive on sphingomyelin, S. chromofuscus PLD is known to hydrolyze both glycerophospholipids and sphingomyelin. Based on recent data indicating a role for ceramide in regulating cell growth and differentiation, we hypothesized that the ability of S. chromofuscus PLD to hydrolyze sphingomyelin might underlie its greater potency. Therefore, we examined the effect of exogenous sphingomyelinase and synthetic ceramides on DNA synthesis. We found that sphingomyelinase exhibited a potent concentration-dependent effect on [3H]thymidine incorporation, much like S. chromofuscus PLD. Synthetic cell-permeable ceramides (C6- and C2-ceramide) also concentration dependently inhibited DNA synthesis, with a half-maximal inhibitory concentration of approximately 12 microM. Finally, we obtained evidence suggesting that ceramide is generated in response to a physiologically relevant agent, because tumor necrosis factor-alpha, a known effector of sphingomyelin turnover in other systems and a cytokine that is produced and released by keratinocytes, increased ceramide levels in primary epidermal keratinocytes.