ERM proteins are regulated by phosphorylation of the most C-terminal threonine residue, switching them from an activated to an inactivated form. However, little is known about the control of this regulation. Previous work in our group demonstrated that secretion of acid sphingomyelinase acts upstream of ERM dephosphorylation, suggesting the involvement of sphingomyelin (SM) hydrolysis in ERM regulation. To define the role of specific lipids, we employed recombinant bacterial sphingomyelinase (bSMase) as a direct probe of SM metabolism at the plasma membrane. bSMase induced a rapid dose- and time-dependent decrease in ERM dephosphorylation. ERM dephosphorylation was driven by ceramide generation and not by sphingomyelin depletion, as shown using recombinant sphingomyelinase D. The generation of ceramide at the plasma membrane was sufficient for ERM regulation, and no intracellular SM hydrolysis was required, as was visualized using Venus-tagged lysenin probe, which specifically binds SM. Interestingly, hydrolysis of plasma membrane bSMase-induced ceramide using bacterial ceramidase caused ERM hyperphosphorylation and formation of cell surface protrusions. The effects of plasma membrane ceramide hydrolysis were due to sphingosine 1-phosphate formation, as ERM phosphorylation was blocked by an inhibitor of sphingosine kinase and induced by sphingosine 1-phosphate. Taken together, these results demonstrate a new regulatory mechanism of ERM phosphorylation by sphingolipids with opposing actions of ceramide and sphingosine 1-phosphate. The approach also defines a tool kit to probe sphingolipid signaling at the plasma membrane.