Elevated TNFalpha levels are associated with insulin resistance, but the molecular mechanisms linking cytokine signaling to impaired insulin function remain elusive. We previously demonstrated a role for Akt in insulin regulation of protein kinase CbetaII alternative splicing through phosphorylation of serine/arginine-rich protein 40, a required mechanism for insulin-stimulated glucose uptake. We hypothesized that TNFalpha attenuated insulin signaling by dephosphorylating Akt and its targets via ceramide-activated protein phosphatase. Western blot analysis of L6 cell lysates demonstrated impaired insulin-stimulated phosphorylation of Akt, serine/arginine-rich protein 40, and glycogen synthase kinase 3beta in response to TNFalpha and the short chain C6 ceramide analog. TNFalpha increased serine/threonine phosphatase activity of protein phosphatase 1 (PP1) in response to C6, but not insulin, suggesting a ceramide-specific effect. Myriocin, an inhibitor of de novo ceramide synthesis, blocked stimulation of the PP1 activity. Ceramide species measurement by liquid chromatography-mass spectrometry showed consistent increases in C24:1 and C16 ceramides. Effects of TNFalpha and C6 on insulin-stimulated phosphorylation of glycogen synthase kinase 3beta were prevented by myriocin and tautomycin, a PP1 inhibitor, further implicating a de novo ceramide-PP1 pathway. Alternative splicing assays demonstrated that TNFalpha abolished insulin-mediated inclusion of the protein kinase CbetaII exon. Collectively, our work demonstrates a role for PP1-like ceramide-activated protein phosphatase in mediating TNFalpha effects blocking insulin phosphorylation cascades involved in glycogen metabolism and alternative splicing.