Prior studies demonstrated that ceramide was phosphorylated by a novel Ca(2+)-dependent kinase distinct from diacylglycerol (DG) kinase in human myelogenous leukemia (HL-60) cells (Kolesnick, R. N., and Hemer, M. R. (1990) J. Biol. Chem. 265, 10900-10904). The present studies were initiated to determine whether mammalian DG kinase purified to homogeneity possessed phosphotransferase activity toward ceramide. A high molecular weight rat brain DG kinase demonstrated Mg(2+)-(but not Ca(2+)-) dependent DG kinase activity and did not phosphorylate ceramide in the presence of either cation. In contrast, ceramide served as a competitive inhibitor with an inhibition constant (Ki) 2-6-fold greater than the Km for DG. Inhibition was noncompetitive with respect to ATP and Mg2+. A cell-permeable ceramide, N-octanoyl sphingosine (C8-cer), was used to study effects of ceramide on DG kinase in intact HL-60 cells. C8-cer induced dose- and time-dependent increases in cellular DG levels. As little as 1 microM C8-cer increased DG from a basal level of 103 to 177 pmol.10(6) cells-1, and a maximal 2.9-fold elevation to 292 pmol.10(6) cells-1 occurred with 10 microM C8-cer. DG elevation was detected after 1 min, maximal by 7.5 min, and sustained for 30 min. The DG elevation was accompanied by a reduction in 32P incorporation in phosphatidic acid in cells short term-labeled with [32P]orthophosphoric acid, consistent with inhibition of DG kinase. In contrast, a similar elevation in the DG level induced by exogenous phospholipase C increased 32P incorporation into phosphatidic acid. C8-cer was not metabolized to sphingomyelin, indicating that DG was not generated through the phosphatidylcholine:ceramide cholinephosphotransferase reaction. DG elevation after C8-cer or phospholipase C treatment was sufficient to redistribute protein kinase C from cytosol to membrane. These findings provide evidence that ceramide may serve as a competitive inhibitor of DG kinase.