Diabetes mellitus is a metabolic disease with multiple complications that causes serious diseases over the years. The condition leads to severe economic consequences and is reaching pandemic level globally. Much research is being carried out to address this disease and its underlying molecular mechanism. This review focuses on the diverse role and mechanism of ceramide, a prime sphingolipid signaling molecule, in the pathogenesis of type 1 and type 2 diabetes and its complications. Studies using cultured cells, animal models, and human subjects demonstrate that ceramide is a key player in the induction of β-cell apoptosis, insulin resistance, and reduction of insulin gene expression. Ceramide induces β-cell apoptosis by multiple mechanisms namely; activation of extrinsic apoptotic pathway, increasing cytochrome c release, free radical generation, induction of endoplasmic reticulum stress and inhibition of Akt. Ceramide also modulates many of the insulin signaling intermediates such as insulin receptor substrate, Akt, Glut-4, and it causes insulin resistance. Ceramide reduces the synthesis of insulin hormone by attenuation of insulin gene expression. Better understanding of this area will increase our understanding of the contribution of ceramide to the pathogenesis of diabetes, and further help in identifying potential therapeutic targets for the management of diabetes mellitus and its complications.