The ASAH1 gene encodes acid ceramidase (AC), an enzyme that is implicated in the metabolism of ceramide (Cer). Mutations in the ASAH1 gene cause two different disorders, Farber disease (FD), a rare lysosomal storage disorder, and a rare form of spinal muscular atrophy combined with progressive myoclonic epilepsy (SMA-PME). In the absence of human in vitro neuronal disease models and to gain mechanistic insights into pathological effects of ASAH1 deficiency, we established and characterized a stable ASAH1 knockdown (ASAH1^KD) SH-SY5Y cell line. ASAH1^KD cells displayed reduced proliferation due to elevated apoptosis and G1/S cell cycle arrest. Distribution of LAMP1-positive lysosomes towards the cell periphery and significantly shortened and less branched neurites upon differentiation, implicate AC for lysosome positioning and neuronal development, respectively. Lipidomic analysis revealed changes in the intracellular levels of distinct sphingolipid species, importantly without Cer accumulation, in line with altered gene transcription within the sphingolipid pathway. Additionally, the transcript levels for Rho GTPases (RhoA, Rac1, and Cdc42), which are key regulators of axonal orientation, neurite branching and lysosome positioning were found to be dysregulated. This study shows the critical role of AC in neurons and suggests how AC depletion leads to defects seen in neuropathology of SMA-PME and FD.