Prolonged exposure to palmitate impairs β-cell function and mass. One of the proposed mechanisms is alteration in ceramide (Cer) generation. In the present study, exposure to palmitate induced the level of palmitoyl transferase and Cer synthases, enzymes of the Cer de novo and salvage pathways, and doubled total Cer levels, which was associated with decreased insulin secretion and augmented apoptosis in MIN6 cells and human islets. By inhibiting enzymes of the pathways pharmacologically with myriocin (ISP-1) or fumonisin B1 or by small interfering RNA (siRNA), we showed that Cer(14:0), Cer(16:0), Cer(20:1), and Cer(24:0) species, generated by the salvage pathway, are linked to the harmful effect of palmitate on β-cells. Oleate attenuates negative effects of palmitate on β-cells. When oleate was included during culture of MIN6 cells with palmitate, the palmitate-induced up-regulation of the enzymes of the de novo and salvage pathways was prevented resulting in normalized levels of all Cer species except Cer(20:1). Our data suggest that enhanced Cer generation in response to elevated palmitate levels involves both de novo and salvage pathways. However, the negative effects of palmitate on β-cells are attributed to generation of Cer species Cer(14:0), Cer(16:0), and Cer(24:0) via acylation of sphingosine.