SM is unique among the phospholipids because it is restricted to the lumenal aspect of organelles involved in the secretory and endocytic pathways. Given the intracellular sites of SM biosynthesis and hydrolysis, and the interconnections between these sites by vesicle-mediated transport pathways, the basic mechanism for maintaining the intracellular distribution of SM seems clear. It remains to be determined how SM metabolism and transport are coordinated to maintain the SM content of each organelle. For example, the size of the SM pool at the cell surface is maintained by regulation of at least five processes: transport of newly synthesized SM from the Golgi apparatus, plasma membrane lipid recycling, local SM synthesis, local SM hydrolysis, and SM transport from the cell surface to lysosomes. Although SM cannot undergo spontaneous transbilayer movement, SM metabolism generates both DAG, Cer and (indirectly) SPhB which can rapidly 'flip-flop', and thus gain access to the cytoplasmic leaflet of a membrane. It is of particular interest that these lipid species may be involved in the regulation of PK-C, suggesting that SM metabolism could play a role in signal transduction. However, physiological effects of endogenous Cer and SPhB remain elusive, even though the pharmacological effect of SPhB on PK-C is well established. Aside from the direct generation of second messengers, stimulation of SM hydrolysis has also been shown to induce cholesterol movement from the cell surface to intracellular membranes. It is not known whether this reflects the possibility that cholesterol may act as a second messenger. Alternatively, this phenomenon suggests that SM metabolism may cause rapid changes in the physical properties of the cell surface. For example, erythrocytes extensively treated with exogenously-added SMase will undergo endovesiculation It is tempting to speculate that any involvement of SM in the regulation of intracellular processes requires a combination of both the generation of biochemical second messengers and the alteration of membrane biophysical properties that can result from SM metabolism.