Ceramides are central intermediates of sphingolipid metabolism with critical functions in cell organization and survival. They are synthesized on the cytosolic surface of the endoplasmic reticulum (ER) and transported by ceramide transfer protein to the Golgi for conversion to sphingomyelin (SM) by SM synthase SMS1. In this study, we report the identification of an SMS1-related (SMSr) enzyme, which catalyses the synthesis of the SM analogue ceramide phosphoethanolamine (CPE) in the ER lumen. Strikingly, SMSr produces only trace amounts of CPE, i.e., 300-fold less than SMS1-derived SM. Nevertheless, blocking its catalytic activity causes a substantial rise in ER ceramide levels and a structural collapse of the early secretory pathway. We find that the latter phenotype is not caused by depletion of CPE but rather a consequence of ceramide accumulation in the ER. Our results establish SMSr as a key regulator of ceramide homeostasis that seems to operate as a sensor rather than a converter of ceramides in the ER.