Previous studies from our laboratory and others presented evidence that oxidized 1-palmitoyl-2-arachidonyl-sn-glycero-3-phosphatidylcholine (OxPAPC) and oxidized 1-palmitoyl-2-arachidonyl-sn-glycero-3-phosphatidylethanolamine can inhibit lipopolysaccharide (LPS)-mediated induction of interleukin-8 (IL-8) in endothelial cells. Using synthetic derivatives of phosphatidylethanolamine, we now demonstrate that phospholipid oxidation products containing alpha,beta-unsaturated carboxylic acids are the most active inhibitors we examined. 5-Keto-6-octendioic acid ester of 2-phosphatidylcholine (KOdiA-PC) was 500-fold more inhibitory than OxPAPC, being active in the nanomolar range. Our studies in human aortic endothelial cells identify one important mechanism of the inhibitory response as involving the activation of neutral sphingomyelinase. There is evidence that Toll-like receptor-4 and other members of the LPS receptor complex must be colocalized to the caveolar/lipid raft region of the cell, where sphingomyelin is enriched, for effective LPS signaling. Previous work from our laboratory suggested that OxPAPC could disrupt this caveolar fraction. These studies present evidence that OxPAPC activates sphingomyelinase, increasing the levels of 16:0, 22:0, and 24:0 ceramide and that the neutral sphingomyelinase inhibitor GW4869 reduces the inhibitory effect of OxPAPC and KOdiA-PC. We also show that cell-permeant C6 ceramide, like OxPAPC, causes the inhibition of LPS-induced IL-8 synthesis and alters caveolin distribution similar to OxPAPC. Together, these data identify a new pathway by which oxidized phospholipids inhibit LPS action involving the activation of neutral sphingomyelinase, resulting in a change in caveolin distribution. Furthermore, we identify specific oxidized phospholipids responsible for this inhibition.