Myelin is a spiral compilation of uniformly thick membranes around the axon in an alternating fashion, and it is formed by a complicated process known as myelination. Myelin sheaths are responsible for various physiological functions such as metabolism, rapid nerve conduction, and maintaining ionic and water homeostasis in the brain. Lipid is one of the major components in the myelin, which includes cholesterol, ceramide, and their derivatives, such as galactosylceramide, sulfatide, and gangliosides. Ceramide and its derivatives are synthesised by various ceramide biosynthetic pathways such as de novo, salvage, sphingomyelinase, and recycling of exogenous ceramide. At an appropriate level, ceramide facilitates the development of the nervous system, cell proliferation, autophagy, and apoptosis, which are responsible for normal functioning, but when the level is altered from normal, it results in mitochondrial dysfunction or cell death through autophagy and apoptosis. The ceramide level increases, especially in the mitochondria. Ceramide level increases in response to oxidative stress which is mediated by inflammatory cytokines. Due to mitochondrial dysfunction, an energy-deficient condition is created because of disruption in the electron transport chain, which results in the death of neurons and glial cells, which subsequently cause demyelination and degeneration of axon. Losing myelin while axons remain relatively intact is the characteristic feature of demyelinating diseases. The primary element of demyelinating disorder is damage, malfunction, failure, or death of mitochondria. These disturbances may occur due to direct or indirect interaction of ceramide with mitochondria. There are several risk factors for demyelination, such as viruses, bacteria, fungi, trauma, obesity, vitamin D deficiency, and genetic and environmental factors. Thus, the review is mainly aimed towards the interaction between ceramide and mitochondria during demyelination.