A screen for Drosophila synaptic dysfunction mutants identified slug-a-bed (slab). The slab gene encodes ceramidase, a central enzyme in sphingolipid metabolism and regulation. Sphingolipids are major constituents of lipid rafts, membrane domains with roles in vesicle trafficking, and signaling pathways. Null slab mutants arrest as fully developed embryos with severely reduced movement. The SLAB protein is widely expressed in different tissues but enriched in neurons at all stages of development. Targeted neuronal expression of slab rescues mutant lethality, demonstrating the essential neuronal function of the protein. C5-ceramide applied to living preparations is rapidly accumulated at neuromuscular junction (NMJ) synapses dependent on the SLAB expression level, indicating that synaptic sphingolipid trafficking and distribution is regulated by SLAB function. Evoked synaptic currents at slab mutant NMJs are reduced by 50-70%, whereas postsynaptic glutamate-gated currents are normal, demonstrating a specific presynaptic impairment. Hypertonic saline-evoked synaptic vesicle fusion is similarly impaired by 50-70%, demonstrating a loss of readily releasable vesicles. In addition, FM1-43 dye uptake is reduced in slab mutant presynaptic terminals, indicating a smaller cycling vesicle pool. Ultrastructural analyses of mutants reveal a normal vesicle distribution clustered and docked at active zones, but fewer vesicles in reserve regions, and twofold to threefold increased incidence of vesicles linked together and tethered at the plasma membrane. These results indicate that SLAB ceramidase function controls presynaptic terminal sphingolipid composition to regulate vesicle fusion and trafficking, and thus the strength and reliability of synaptic transmission.