There is strong evidence indicating a role for ceramide as a second messenger in processes such as apoptosis, cell growth and differentiation, and cellular responses to stress. Ceramide formation from the hydrolysis of sphingomyelin is considered to be a major pathway of stress-induced ceramide production with magnesium-dependent neutral sphingomyelinase (N-SMase) identified as a prime candidate in this pathway. The recent cloning of a mammalian N-SMase-nSMase2- and generation of nSMase2 knockout/mutant mice have now provided vital tools with which to further study the regulation and roles of this enzyme in both a physiological and pathological context. In the present review, we summarize current knowledge on N-SMase relating this to what is known about nSMase2. We also discuss the future areas of nSMase2 research important for molecular understanding of this enzyme and its physiological roles.