Krabbe disease (KD) is an inherited neurological disorder caused by the deficiency of galactocerebrosidase activity resulting in accumulation of psychosine, which leads to energy depletion, loss of oligodendrocytes, induction of gliosis, and inflammation by astrocytes in CNS. In this study, for the first time, we report the regulation of ‘cellular energy switch,’ AMP-activated protein kinase (AMPK), by psychosine in oligodendrocytes and astrocytes. Psychosine treatment significantly down-regulated AMPK activity, resulting in increased biosynthesis of lipids including cholesterol and free fatty acid in oligodendrocytes cell line (MO3.13) and primary astrocytes. Pharmacological activator of AMPK, 5-aminoimidazole-4-carboxamide-1-β-4-ribofuranoside (AICAR) attenuated the psychosine-mediated down-regulation of AMPK and restored altered biosynthesis of lipids. AICAR treatment also down-regulated psychosine induced expression of proinflammatory cytokines and inducible nitric oxide synthase in primary astrocytes. However, AICAR treatment had no effect on psychosine induced-reactive oxygen species generation, arachidonic acid release, and death of oligodendrocytes; suggesting the specific role of AMPK in regulation of psychosine-mediated inflammatory response of astrocytes but not in cell death of oligodendrocytes. This study delineates an explicit role for AMPK in psychosine induced inflammation in astrocytes without directly affecting the cell death of oligodendrocytes. It also suggests that AMPK activating agents act as anti-inflammatory agents and can hold a therapeutic potential in Krabbe disease/twitcher disease, particularly when used in combination with drugs, which protect oligodendrocyte cell loss, such as sPLA2 inhibitor [Giri et al., J. Lipid Res.47 (2006), 1478].