Sphingomyelin phosphodiesterase acid-like 3b (SMPDL3b) is a lipid raft enzyme that regulates plasma membrane (PM) fluidity. Here we report that SMPDL3b excess, as observed in podocytes in diabetic kidney disease (DKD), impairs insulin receptor isoform B-dependent pro-survival insulin signaling by interfering with insulin receptor isoforms binding to caveolin-1 in the PM. SMPDL3b excess affects the production of active sphingolipids resulting in decreased ceramide-1-phosphate (C1P) content as observed in human podocytes in vitro and in kidney cortexes of diabetic db/db mice in vivo. Podocyte-specific Smpdl3b deficiency in db/db mice is sufficient to restore kidney cortex C1P content and to protect from DKD. Exogenous administration of C1P restores IR signaling in vitro and prevents established DKD progression in vivo. Taken together, we identify SMPDL3b as a modulator of insulin signaling and demonstrate that supplementation with exogenous C1P may represent a lipid therapeutic strategy to treat diabetic complications such as DKD.