Tumor necrosis factor-alpha (TNF-alpha) is a proinflammatory cytokine that activates several signaling cascades. We determined the extent to which ceramide is a second messenger for TNF-alpha-induced signaling leading to cytoskeletal rearrangement in Rat2 fibroblasts. TNF-alpha, sphingomyelinase, or C(2)-ceramide induced tyrosine phosphorylation of focal adhesion kinase (FAK) and paxillin, and stress fiber formation. Ly 294002, a phosphatidylinositol 3-kinase (PI 3-K) inhibitor, or expression of dominant/negative Ras (N17) completely blocked C(2)-ceramide- and sphingomyelinase-induced tyrosine phosphorylation of FAK and paxillin and severely decreased stress fiber formation. The TNF-alpha effects were only partially inhibited. Dimethylsphingosine, a sphingosine kinase (SK) inhibitor, blocked stress fiber formation by TNF-alpha and C(2)-ceramide. TNF-alpha, sphingomyelinase, and C(2)-ceramide translocated Cdc42, Rac, and RhoA to membranes, and stimulated p21-activated protein kinase downstream of Ras-GTP, PI 3-K, and SK. Transfection with inactive RhoA inhibited the TNF-alpha- and C(2)-ceramide-induced stress fiber formation. Our results demonstrate that stimulation by TNF-alpha, which increases sphingomyelinase activity and ceramide formation, activates sphingosine kinase, Rho family GTPases, focal adhesion kinase, and paxillin. This novel pathway of ceramide signaling can account for approximately 70% of TNF-alpha-induced stress fiber formation and cytoskeletal reorganization.