Autoproteolytic cleavage of the inactive acid ceramidase (AC) precursor into the active heterodimer exposes a free cysteine residue, leading us to study whether AC could be regulated by one or more members of the cystatin family. Co-expression of the full-length AC and cystatin SA (cysSA) cDNAs led to significant reduction of AC activity in the transfected cells. Expression of cysSA also inhibited endogenous AC activity in cells and increased ceramide. Conversely, cysSA siRNA expression led to elevated AC activity and reduction in ceramide. The effects of cysSA siRNA expression could be reversed by the addition of recombinant cysSA into the culture media. These results were consistent with detection of a physical interaction between AC and cysSA, assessed by co-immunoprecipitation and nickel-nitrilotriacetic acid affinity chromatography, and further supported by co-localization of the endogenous proteins using confocal microscopy. In vitro kinetic analysis of purified, recombinant AC and cysSA confirmed the transfection results and suggested a non-competitive type of inhibition with a K(i) in the low micromolar range. Processing of the AC precursor into the active form was not affected by cysSA expression, suggesting that it likely inhibits AC by allosteric interference. Computer modeling and expression studies identified several potential inhibitory domains in cysSA, including a small "AC-like" domain (identical to the AC cleavage site, TICT). Small peptides, synthesized with combinations of this and a "cystatin-like" domain (QXVXG), exhibited significant AC inhibition as well. Such peptide-based AC inhibitors could potentially be used to regulate AC activity in cancer cells that are known to overexpress this enzyme alone and in combination with conventional anti-cancer drugs.