3-O-sulfogalactosylceramide or sulfatide is a major component of the myelin sheath in the central and peripheral nervous system. The examination of mice deficient in the sulfatide-synthesizing enzyme, cerebroside sulfotransferase, provided new insight into the role of sulfatide in the differentiation of myelinating cells, formation of the paranodal junction, and myelin maintenance. Although in general regarded as a marker for oligodendrocytes and Schwann cells, sulfatide is also present in astrocytes and neurons. The relatively low amount of sulfatide in neurons can dramatically increase in the absence of the sulfatide-degrading enzyme, arylsulfatase A, as in metachromatic leukodystrophy. Recent advance in the understanding of this disease comes from studies on new transgenic mouse models. Significant changes in sulfatide levels have also been observed more recently in Alzheimer's disease and other diseases, suggesting that sulfatide might be involved in the pathogenesis of these diseases as well. This review summarizes recent studies on the physiological and pathophysiological role of sulfatide using transgenic mice deficient in its synthesis or degradation.