Systemic loss of neutral sphingomyelinase (SMPD3) in mice leads to a novel form of systemic, juvenile hypoplasia (dwarfism). SMPD3 deficiency in mainly two growth regulating cell types contributes to the phenotype, in chondrocytes of skeletal growth zones to skeletal malformation and chondrodysplasia, and in hypothalamic neurosecretory neurons to systemic hypothalamus–pituitary–somatotropic hypoplasia. The unbiased smpd3−/− mouse mutant and derived smpd3−/− primary chondrocytes were instrumental in defining the enigmatic role underlying the systemic and cell autonomous role of SMPD3 in the Golgi compartment. Here we describe the unprecedented role of SMPD3. SMPD3 deficiency disrupts homeostasis of sphingomyelin (SM), ceramide (Cer) and diacylglycerol (DAG) in the Golgi SMPD3-SMS1 (SM-synthase1) cycle. Cer and DAG, two fusogenic intermediates, modify the membrane lipid bilayer for the initiation of vesicle formation and transport. Dysproteostasis, unfolded protein response, endoplasmic reticulum stress and apoptosis perturb the Golgi secretory pathway in the smpd3−/− mouse. Secretion of extracellular matrix proteins is arrested in chondrocytes and causes skeletal malformation and chondrodysplasia. Similarly, retarded secretion of proteo-hormones in hypothalamic neurosecretory neurons leads to hypothalamus induced combined pituitary hormone deficiency. SMPD3 in the regulation of the protein vesicular secretory pathway may become a diagnostic target in the etiology of unknown forms of juvenile growth and developmental inhibition.