Tissue injury in inflammation involves the release of several cytokines that activate sphingomyelinases and generate ceramide. In the lung, the impaired metabolism of surfactant phosphatidylcholine (PC) accompanies this acute and chronic injury. These effects are long-lived and extend beyond the time frame over which tumor necrosis factor (TNF)-alpha and interleukin-1beta are elevated. In this paper, we demonstrate that in H441 lung cells these two processes, cytokine-induced metabolism of sphingomyelin and the inhibition of PC metabolism, are directly interrelated. First, metabolites of sphingomyelin hydrolysis themselves inhibit key enzymes necessary for restoring homeostasis between sphingomyelin and its metabolites. Ceramide stimulates sphingomyelinases as effectively as TNF-alpha, thereby amplifying the sphingomyelinase activation, and TNF-alpha, ceramide, and sphingosine all inhibit PC:ceramide phosphocholine transferase (sphingomyelin synthase), the enzyme that restores homeostasis between sphingomyelin and ceramide pools. Second, ceramide inhibits PC synthesis, probably because of its effects on CTP:phosphocholine cytidylyltransferase, the rate-limiting enzymatic step in de novo PC synthesis. The data presented here suggest that TNF-alpha may be an inhibitor of phospholipid metabolism in inflammatory tissue injury. These actions may be amplified because of the ability of metabolites of sphingomyelin to inhibit the pathways that should restore the normal ceramide-sphingomyelin homeostasis.