Ceramide has been suggested as an intracellular modulator of cell growth and differentiation [Okazaki, T. et al. (1990) J. Biol. Chem. 265, 15823-15831]. In this study, parameters that modulate the effects of ceramide on HL-60 cell growth and differentiation were examined. A short-chain, cell-permeable analog of ceramide, C2-ceramide, induced differentiation of HL-60 human leukemia cells and inhibited HL-60 growth in a concentration-dependent manner. The potency of C2-ceramide was modulated by the starting cell density such that the concentration of C2-ceramide producing 50% inhibition of cell growth (IC50%) ranged from 2 microM (for cells suspended at 1 x 10(5) cells/ml) to 11 microM (for cells at 8 x 10(5) cells/ml). However, the IC50% showed little variation if the concentration of C2-ceramide was expressed as fmol of C2-ceramide per 10(5) cells. Therefore, the effectiveness of C2-ceramide appeared to be primarily determined by its cellular rather than molar concentration. Binding of C2-ceramide to serum proteins resulted in a 10-fold increase in the IC50%. These results demonstrate that the biologic activity of C2-ceramide is subject to surface dilution kinetics and is sensitive to the presence of lipid-binding proteins. In these properties, ceramide behaves as a prototypic lipid second messenger/intracellular mediator.