A role of sphingolipids for inflammatory bowel disease and cancer is evident. However, the relative and separate contribution of sphingolipid deterioration in inflammation versus carcinogenesis for the pathophysiology of colitis-associated colon cancer (CAC) was unknown and therefore examined in this study. We performed isogenic bone marrow transplantation of inducible sphingosine-1-phosphate (S1P) lyase knockout mice to specifically modulate sphingolipids and associated genes and proteins in a compartment-specific way in a DSS/AOM mediated CAC model. 3D organoid cultures were used in vitro. S1P lyase (SGPL1) knockout in either immune cells or tissue, caused local sphingolipid accumulation leading to a dichotomic development of CAC: Immune cell SGPL1 knockout (I-SGPL-/-) augmented massive immune cell infiltration initiating colitis with lesions and calprotectin increase. Pathological crypt remodeling plus extracellular S1P-signaling caused delayed tumor formation characterized by S1P receptor 1, STAT3 mRNA increase, as well as programmed cell death ligand 1 expression, accompanied by a putatively counter regulatory STAT1S727 phosphorylation. In contrast, tissue SGPL1 knockout (T-SGPL-/-) provoked immediate occurrence of epithelial-driven tumors with upregulated sphingosine kinase 1, S1P receptor 2 and epidermal growth factor receptor. Here, progressing carcinogenesis was accompanied by an IL-12 to IL-23 shift with a consecutive development of a Th2/GATA3-driven, tumor-favoring microenvironment. Moreover, the knockout models showed distinct lymphopenia and neutrophilia, different from the full SGPL1 knockout. This study shows that depending on the initiating cellular S1P source, the pathophysiology of inflammation-induced cancer versus cancer-induced inflammation develops through separate, discernible molecular steps.