Our previous results have indicated that the major cellular pool of sphingomyelin present on the outer leaflet of the plasma membrane is not involved in the ceramide pathway of apoptosis. Thus, in this study we aimed at defining which intracellular pools of sphingomyelin and ceramide are involved in cell death. The bacterial sphingomyelinase (SMase) gene fused with green fluorescent protein was subcloned into mammalian vectors containing sequences that target the fusion proteins to cytoplasm, plasma membrane, mitochondria, Golgi apparatus, endoplasmic reticulum, or nucleus. Transfection of MCF7 breast cancer cells showed for all constructs an increase in SMase activity ranging from 2- to 60-fold, concomitant with an increase in total cellular ceramide levels (10-100%) as compared with vector-transfected cells. Next, the effect of overexpression of the SMase on cell death was examined. Results demonstrate that only when bacterial SMase was targeted to mitochondria did cells undergo apoptosis; its targeting to the other intracellular compartments was ineffective. Further, the results show that apoptosis induced by mitochondrial targeting of bacterial SMase requires SMase catalytic activity, is prevented by the overexpression of Bcl-2, and is mediated by inducing cytochrome c release. These results demonstrate that ceramide induces cell death specifically when generated in mitochondria. The results highlight the significance of compartment-specific lipid-mediated cell regulation, and they offer a novel general approach for these studies.