Types A and B Niemann-Pick disease (NPD) are inherited multisystem lysosomal storage disorders due to mutations in the SMPD1 gene. Respiratory dysfunction is a key hallmark of NPD, yet the mechanism for this is underexplored. SMPD1 encodes acid sphingomyelinase (ASM), which hydrolyses sphingomyelin to ceramide and phosphocholine. Here, we present a Drosophila model of ASM loss-of-function, lacking the fly orthologue of SMPD1, dASM, modelling several aspects of the respiratory pathology of NPD. dASM is expressed in the late-embryonic fly respiratory network, the trachea, and is secreted into the tracheal lumen. Loss of dASM results in embryonic lethality, and the tracheal lumen fails to fill normally with gas prior to eclosion. We demonstrate that the endocytic clearance of luminal constituents prior to gas-filling is defective in dASM mutants, and is coincident with autophagic, but not lysosomal defects, in late stage embryonic trachea. Finally, we show that although bulk sphingolipids are unchanged, dietary loss of lipids in combination with genetic and pharmacological block of ceramide synthesis rescues the airway gas-filling defects. We highlight myriocin as a potential therapeutic drug for the treatment of the developmental respiratory defects associated with ASM deficiency, and present a new NPD model amenable to genetic and pharmacological screens.