Although encystation (cyst formation) is important for the survival of Giardia lamblia outside its human host, the molecular events that prompt encystation have not been fully elucidated. Here, we demonstrate that sphingolipids (SLs), which are important for the growth and differentiation of many eukaryotes, play key roles in giardial encystation. Transcriptional analyses showed that only three genes in the SL biosynthesis pathways are expressed and transcribed differentially in nonencysting and encysting Giardia trophozoites. While the putative homologues of giardial serine palmitoyltransferase (gSPT) subunit genes (gspt-1 and -2) are differentially expressed in nonencysting and encysting trophozoites, the giardial ceramide glucosyltransferase 1 gene (gglct-1) is transcribed only in encysting cells. l-Cycloserine, an inhibitor of gSPT, inhibited the endocytosis and endoplasmic reticulum/perinuclear targeting of bodipy-ceramide in trophozoites, and this could be reversed by 3-ketosphinganine. On the other hand, D-threo-1-phenyl-2-palmitoylamino-3-morpholino-1-propanol (PPMP), an inhibitor of glucosylceramide synthesis, blocked karyokinesis and reduced cyst production in culture. PPMP also altered the expression of cyst wall protein transcripts in encysting cells. Phylogenetic analyses revealed that the gspt genes are paralogs derived from an ancestral spt sequence that underwent gene duplication early in eukaryotic history. This ancestral sequence, in turn, was probably derived from prokaryotic aminoacyl transferases. In contrast, gglct-1 is found in both prokaryotes and eukaryotes without any evidence of gene duplication. These studies indicate that SL synthesis genes are involved in key events in giardial biology and could serve as potential targets for developing new therapies against giardiasis.