Ceramide is a novel lipid mediator involved in regulating cell growth, cell differentiation and cell death. Many studies have focused on characterizing the stimulus-induced production of ceramide and identifying putative downstream molecular targets. However, little remains known about the localization of the regulated production of ceramide through sphingomyelin metabolism in the plasma membrane. Additionally, it is unclear whether a localized increase in ceramide concentration is necessary to facilitate downstream signalling events initiated by this lipid. Recent studies have suggested that detergent-insoluble plasma membrane domains may be highly localized sites for initiating signal transduction cascades by both tyrosine kinase and sphingolipid signalling pathways. These domains are typically enriched in both sphingolipids and cholesterol and have been proposed to form highly ordered lipid rafts floating in a sea of glycerophospholipids. Alternatively, upon integration of the cholesterol binding protein caveolin, these domains may also form small cave-like structures called caveolae. Emerging evidence suggests that the enhanced sphingomyelin content of these lipid domains make them potential substrate pools for sphingomyelinases to produce a high local concentration of ceramide. The subsequent formation of ceramide microdomains in the plasma membrane may be a critical factor in regulating downstream signalling through this lipid messenger.