In Alzheimer’s disease (AD), abnormal sphingolipid metabolism has been reported, although the pathogenic consequences of these changes have not been fully characterized. We show that acid sphingomyelinase (ASM) is increased in fibroblasts, brain, and/or plasma from patients with AD and in AD mice, leading to defective autophagic degradation due to lysosomal depletion. Partial genetic inhibition of ASM (ASM^+/−) in a mouse model of familial AD (FAD; amyloid precursor protein [APP]/presenilin 1 [PS1]) ameliorated the autophagocytic defect by restoring lysosomal biogenesis, resulting in improved AD clinical and pathological findings, including reduction of amyloid-β (Aβ) deposition and improvement of memory impairment. Similar effects were noted after pharmacologic restoration of ASM to the normal range in APP/PS1 mice. Autophagic dysfunction in neurons derived from FAD patient induced pluripotent stem cells (iPSCs) was restored by partial ASM inhibition. Overall, these results reveal a novel mechanism of ASM pathogenesis in AD that leads to defective autophagy due to impaired lysosomal biogenesis and suggests that partial ASM inhibition is a potential new therapeutic intervention for the disease.