Sphingolipids are important in many brain functions but their role in Alzheimer’s disease (AD) is not completely defined. A major limit is availability of fresh brain tissue with defined AD pathology. The discovery that cerebrospinal fluid (CSF) contains abundant nanoparticles that include synaptic vesicles and large dense core vesicles offer an accessible sample to study these organelles, while the supernatant fluid allows study of brain interstitial metabolism. Our objective was to characterize sphingolipids in nanoparticles representative of membrane vesicle metabolism, and in supernatant fluid representative of interstitial metabolism from study participants with varying levels of cognitive dysfunction. We recently described the recruitment, diagnosis, and CSF collection from cognitively normal or impaired study participants. Using liquid chromatography tandem mass spectrometry, we report that cognitively normal participants had measureable levels of sphingomyelin, ceramide, and dihydroceramide species, but that their distribution differed between nanoparticles and supernatant fluid, and further differed in those with cognitive impairment. In CSF from AD compared with cognitively normal participants: a) total sphingomyelin levels were lower in nanoparticles and supernatant fluid; b) levels of ceramide species were lower in nanoparticles and higher in supernatant fluid; c) three sphingomyelin species were reduced in the nanoparticle fraction. Moreover, three sphingomyelin species in the nanoparticle fraction were lower in mild cognitive impairment compared with cognitively normal participants. The activity of acid, but not neutral sphingomyelinase was significantly reduced in the CSF from AD participants. The reduction in acid sphingomylinase in CSF from AD participants was independent of depression and psychotropic medications. Acid sphingomyelinase activity positively correlated with amyloid β₄₂ concentration in CSF from cognitively normal but not impaired participants. In dementia, altered sphingolipid metabolism, decreased acid sphingomyelinase activity and its lost association with CSF amyloid β₄₂ concentration, underscores the potential of sphingolipids as disease biomarkers, and acid sphingomyelinase as a target for AD diagnosis and/or treatment.