Over two decades ago, ceramide, a precursor of most complex sphingolipids, was recognized as a second messenger that plays important roles in signal transduction and cell regulation. Acid ceramidase (N-acylsphingosine deacylase, EC 3.5.1.23; AC) is a lysosomal hydrolase that catalyzes the breakdown of ceramide into sphingosine (Sph) and free fatty acid, thereby controlling the concentration of ceramide. Sph can be further phosphorylated by Sph kinase to generate sphingosine 1-phosphate (S1P), which is considered as a bioactive lipid that antagonizes ceramide-induced apoptosis. Importantly, AC can also synthesize ceramide from Sph and free fatty acids, suggesting that the enzyme may determine cell fate, namely, death or survival, by controlling the balance between the intracellular levels of ceramide and S1P. Recent studies have also shown that aberrant AC activity is a relevant feature of human disease. This review will discuss the roles of ceramide, the current findings regarding AC, and its important roles in mammalian development and human diseases.