The neutral sphingomyelinase (N-SMase) is considered a major candidate for mediating the stress-induced production of ceramide, and it plays an important role in cell-cycle arrest, apoptosis, inflammation, and eukaryotic stress responses. Recent studies have identified a small region at the very N-terminus of the 55 kDa tumour necrosis factor receptor (TNF-R55), designated the neutral sphingomyelinase activating domain (NSD) that is responsible for the TNF-induced activation of N-SMase. There is no direct association between TNF-R55 NSD and N-SMase; instead, a protein named factor associated with N-SMase activation (FAN) has been reported to couple the TNF-R55 NSD to N-SMase. Since the three-dimensional fold of N-SMase is still unknown, we have modeled the structure using the protein fold recognition and threading method. Moreover, we propose models for the TNF-R55 NSD as well as the FAN protein in order to study the structural basis of N-SMase activation and regulation. Protein-protein interaction studies suggest that FAN is crucially involved in mediating TNF-induced activation of the N-SMase pathway, which in turn regulates mitogenic and proinflammatory responses. Inhibition of N-SMase may lead to reduction of ceramide levels and hence may provide a novel therapeutic strategy for inflammation and autoimmune diseases. Molecular dynamics (MD) simulations were performed to check the stability of the predicted model and protein-protein complex; indeed, stable RMS deviations were obtained throughout the simulation. Furthermore, in silico docking of low molecular mass ligands into the active site of N-SMase suggests that His135, Glu48, Asp177, and Asn179 residues play crucial roles in this interaction. Based on our results, these ligands are proposed to be potent and selective N-SMase inhibitors, which may ultimately prove useful as lead compounds for drug development.