We have previously identified a novel CoA-independent transacetylase in the membrane fraction of HL-60 cells that transfers the acetate group from platelet activating factor (PAF) to a variety of lysophospholipid acceptors (Lee, T.-c., Uemura, Y., and Snyder, F. (1992) J. Biol. Chem. 267, 19992-20001). In the present study, we demonstrate that a similar transacetylase can transfer the acetate group from PAF to sphingosine forming N-acetylsphingosine (C2-ceramide). The chemical structure of the reaction product, C3-ceramide, was established by its identical Rf value with authentic C2-ceramide standard on thin-layer plate, sensitivity to acid treatment, resistance to alkaline hydrolysis, and ability to form the C2-ceramide dibenzoate derivative. Nonspecific transfer of the acetate from PAF to sphingosine in the absence of enzyme and nonlinearity of the reaction rates were rectified by complexing sphingosine to bovine serum albumin in a 1:1 molar ratio. Under these conditions, the apparent Km for PAF is 5.4 microM, which is in the same range as the Km (12.0 microM) when lysoplasmalogen is the acetate acceptor. PAF:sphingosine transacetylase has a narrow substrate specificity and strict stereochemical configuration requirements. Ceramide, sphingosylphosphocholine, stearylamine, sphingosine 1-phosphate, or sphingomyelin are not substrates, whereas sphinganine has a limited capacity to accept the acetate from PAF. Also, only the naturally synthesized D-erythroisomer but not the synthetic L-erythro-, D-threo-, or L-threosiomers of sphingosine can serve as a substrate. PAF transacetylase activity is widely distributed among several tissues and may involve histidine and cysteine for its catalytic activity due to inhibitory effects to the enzyme by diethyl pyrocarbonate and N-ethylmaleimide, respectively. C2-ceramide is produced via PAF:sphingosine transacetylase, and physiological levels of C2-ceramide are detected in both undifferentiated and differentiated intact HL-60 cells. Collectively, because C2-ceramide has many biological activities that differ from that of PAF and sphingosine, the CoA-independent, PAF-dependent transacetylase serves as a modifier of PAF, and sphingosine functions by generating a variant lipid mediator, C2-ceramide.