Lipid phosphate phosphatases (LPPs) are integral membrane enzymes that regulate the levels of bioactive lipids such as sphingosine 1-phosphate and lysophosphatidic acid. The Drosophila LPPs Wunen (Wun) and Wunen-2 (Wun2) have a well-established role in regulating the survival and migration of germ cells. We now show that wun has an essential tissue-autonomous role in development of the trachea: the catalytic activity of Wun is required to maintain septate junction (SJ) paracellular barrier function, loss of which causes failure to accumulate crucial luminal components, suggesting a role for phospholipids in SJ function. We find that the integrity of the blood-brain barrier is also lost in wun mutants, indicating that loss of SJ function is not restricted to the tracheal system. Furthermore, by comparing the rescue ability of different LPP homologs we show that wun function in the trachea is distinct from its role in germ cell migration.