Regulation of normal development involves a dynamic balance of the mechanisms regulating cell division, differentiation and death. We have investigated the signalling mechanisms involved in regulation of the balance between cell proliferation and apoptotic cell death in the otic vesicle. The sphingomyelin pathway signals apoptosis for nerve growth factor upon binding to p75 receptors. It is initiated by sphingomyelin hydrolysis to generate the second messenger ceramide. In the present study, we show that nerve growth factor stimulates sphingomyelin hydrolysis and the concomitant ceramide release in organotypic cultures of otic vesicles. Both nerve growth factor and ceramide induce apoptotic responses to a different extent. Ceramide-induced apoptosis was suppressed by insulin-like growth factor-I which is a strong promoter of cell growth and morphogenesis for the developing inner ear. In contrast, ceramide-1-phosphate protected the explants from apoptosis induced by serum withdrawal but did not antagonise ceramide-induced cell death. This study suggests that sphingomyelin-derived second messengers might be key modulators of programmed cell death during development.