Bioactive N-acylethanolamines (NAEs) include palmitoylethanolamide, oleoylethanolamide, and anandamide, which exert anti-inflammatory, anorexic, and cannabimimetic actions, respectively. The degradation of NAEs has been attributed to two hydrolases, fatty acid amide hydrolase and NAE acid amidase (NAAA). Acid ceramidase (AC) is a lysosomal enzyme that hydrolyzes ceramide (N-acylsphingosine), which resembles NAAA in structure and function. In the present study, we examined the role of AC in the degradation of NAEs. First, we demonstrated that purified recombinant human AC can hydrolyze various NAEs with lauroylethanolamide (C12:0-NAE) as the most reactive NAE substrate. We then used HEK293 cells metabolically labeled with [14C]ethanolamine, and revealed that overexpressed AC lowered the levels of 14C-labeled NAE. As analyzed with liquid chromatography-tandem mass spectrometry, AC overexpression decreased the amounts of different NAE species. Furthermore, suppression of endogenous AC in LNCaP prostate cells by siRNA increased the levels of various NAEs. Lastly, tissue homogenates from mice genetically lacking saposin D, a presumable activator protein of AC, showed much lower hydrolyzing activity for NAE as well as ceramide than the homogenates from wild-type mice. These results demonstrate the ability of AC to hydrolyze NAEs and suggest its physiological role as a third NAE hydrolase.