Niemann Pick disease type A (NPA), which is caused by loss of function mutations in the acid sphingomyelinase (ASM) gene, is a lysosomal storage disorder leading to neurodegeneration. Yet, lysosomal dysfunction and its consequences in the disease are poorly characterized. Here we show that undegraded molecules build up in neurons of acid sphingomyelinase knockout mice and in fibroblasts from NPA patients in which autophagolysosomes accumulate. The latter is not due to alterations in autophagy initiation or autophagosome–lysosome fusion but because of inefficient autophago–lysosomal clearance. This, in turn, can be explained by lysosomal membrane permeabilization leading to cytosolic release of Cathepsin B. High sphingomyelin (SM) levels account for these effects as they can be induced in control cells on addition of the lipid and reverted on SM-lowering strategies in ASM-deficient cells. These results unveil a relevant role for SM in autophagy modulation and characterize autophagy anomalies in NPA, opening new perspectives for therapeutic interventions. Cell Death and Differentiation advance online publication, 31 January 2014; doi:10.1038/cdd.2014.4