Sphingolipids are found in abundance at synapses and have been implicated in regulation of synapse structure, function, and degeneration. Their precise role in these processes, however, remains obscure. Serine Palmitoyl-transferase (SPT) is the first enzymatic step for synthesis of sphingolipids. Analysis of the Drosophila larval neuromuscular junction (NMJ) revealed mutations in the SPT enzyme subunit, lace/SPTLC2 resulted in deficits in synaptic structure and function. Although NMJ length is normal in lace mutants, the number of boutons per NMJ is reduced to ∼50% of the wild type number. Synaptic boutons in lace mutants are much larger but show little perturbation to the general ultrastructure. Electrophysiological analysis of lace mutant synapses revealed strong synaptic transmission coupled with predominance of depression over facilitation. The structural and functional phenotypes of lace mirrored aspects of Basigin (Bsg), a small Ig-domain adhesion molecule also known to regulate synaptic structure and function. Mutant combinations of lace and Bsg generated large synaptic boutons, while lace mutants showed abnormal accumulation of Bsg at synapses, suggesting that Bsg requires sphingolipid to regulate structure of the synapse. In support of this, we found Bsg to be enriched in lipid rafts. Our data points to a role for sphingolipids in the regulation and fine-tuning of synaptic structure and function while sphingolipid regulation of synaptic structure may be mediated via the activity of Bsg.