Sphingolipids have garnered attention for their role in insulin resistance and lipotoxic cell death. We have developed transgenic mice inducibly expressing acid ceramidase that display a reduction in ceramides in adult mouse tissues. Hepatic overexpression of acid ceramidase prevents hepatic steatosis and prompts improvements in insulin action in liver and adipose tissue upon exposure to high-fat diet. Conversely, overexpression of acid ceramidase within adipose tissue also prevents hepatic steatosis and systemic insulin resistance. Induction of ceramidase activity in either tissue promotes a lowering of hepatic ceramides and reduced activation of the ceramide-activated protein kinase C isoform PKCζ, though the induction of ceramidase activity in the adipocyte prompts more rapid resolution of hepatic steatosis than overexpression of the enzyme directly in the liver. Collectively, our observations suggest the existence of a rapidly acting “cross-talk” between liver and adipose tissue sphingolipids, critically regulating glucose metabolism and hepatic lipid uptake. Display omitted •Ceramides play a causal role in diet-induced NAFLD•Degradation of ceramides in liver results in improved glucose and lipid metabolism•Degradation of ceramide in fat results in improved glucose and lipid metabolism•Ceramide promotes PKCζ activation and CD36-mediated lipid uptake in the liver Xia et al. reveal a “cross-talk” between the liver and adipose tissue using mice that inducibly express acid ceramidase, which triggers the deacylation of ceramides in these tissues. Decreased ceramide levels result in reduced activation of the ceramide-activated protein kinase C zeta, leading to reduced hepatic steatosis and improved insulin action.