A defective permeability barrier leads to the penetration of environmental allergens into the skin and initiates immunological reactions and inflammation crucially involved in the pathogenesis of atopic dermatitis (AD). Decreased stratum corneum ceramide content may cause the defect in permeability barrier function consistently found in AD. Acid and neutral sphingomyelinase (A- and N-SMase) generate ceramides with structural and signal transduction functions in epidermal proliferation and differentiation. We determined epidermal SMase activities, DNA synthesis, involucrin, loricrin, filaggrin, and keratin expression in lesional and non-lesional skin of AD patients. We found decreased epidermal A-SMase activity in lesional and non-lesional skin, correlating with reduced stratum corneum ceramide content and disturbed barrier function. N-SMase activity was reduced in non-lesional skin and more significantly reduced in lesional skin, correlating with impaired expression of cornified envelope proteins and keratins, important for skin barrier function. Changes in involucrin, loricrin, filaggrin, keratin K 5 (basal) and K 16 (proliferation associated) were noticed in non-lesional and lesional skin, whereas changes in K 10 (suprabasal), K 6 (proliferation associated), and K 17 (inflammation associated) were found only in lesional skin. In summary, reduction in SMase-generating ceramides and impaired differentiation are involved in the defective barrier function found in AD.