Glia are of vital importance for all complex nervous system. One of the many functions of glia is to insulate and provide trophic and metabolic support to axons. Here, using glial-specific RNAi knockdown in Drosophila, we silenced 6930 conserved genes in adult flies to identify essential genes and pathways. Among our screening hits, metabolic processes were highly represented, and genes involved in carbohydrate and lipid metabolic pathways appeared to be essential in glia. One critical pathway identified was de novo ceramide synthesis. Glial knockdown of lace, a subunit of the serine palmitoyltransferase associated with hereditary sensory and autonomic neuropathies in humans, resulted in ensheathment defects of peripheral nerves in Drosophila. A genetic dissection study combined with shotgun high-resolution mass spectrometry of lipids showed that levels of ceramide phosphoethanolamine are crucial for axonal ensheathment by glia. A detailed morphological and functional analysis demonstrated that the depletion of ceramide phosphoethanolamine resulted in axonal defasciculation, slowed spike propagation, and failure of wrapping glia to enwrap peripheral axons. Supplementing sphingosine into the diet rescued the neuropathy in flies. Thus, our RNAi study in Drosophila identifies a key role of ceramide phosphoethanolamine in wrapping of axons by glia.