We have investigated the effects of inhibiting sphingomyelin (SM) biosynthesis on cellular diacylglycerol (DAG) content and protein kinase C (PKC) activation during growth initiation in Madin-Darby canine kidney cells. We utilized beta-chloroalanine (BCA) to inactivate serine C -palmitoyltransferase, the first enzyme in the sphingolipid biosynthesis pathway. This inactivation prevented growth, but did not affect viability. When the inhibitor was replaced with fresh culture medium, the cells continued their proliferation in a normal way. BCA (2 mM) inhibited [(32)P]P(i), [(3)H]palmitic acid and [ methyl -(3)H]choline incorporation into SM, but did not influence the synthesis of other major phospholipids. SM synthesis and DAG generation were decreased by 51% and 47.6% respectively. Particulate PKC activity was not observed in cells incubated with BCA, in contrast with a 5-fold increase in control cells. BCA inhibited 75% of the [(3)H]thymidine incorporation, and the cells were arrested before the S phase of the cell cycle. Moreover, exogenous D-erythrosphingosine restored SM synthesis, DAG generation and cell proliferation. These data indicate that the contribution of DAG generated during SM synthesis plays an important role in PKC activation and cell proliferation.