Caveolin-1 is a principal component of caveolae membranes. In NIH 3T3 cells, caveolin-1 expression is dramatically up-regulated in confluent cells and localizes at areas of cell-cell contact. However, it remains unknown whether caveolin-1 is involved in cell-cell signaling. Here, we examine the potential role of caveolin-1 in regulating beta-catenin signaling. beta-Catenin plays a dual role in the cell, linking E-cadherin to the actin cytoskeleton and in Wnt signaling by forming a complex with members of the lymphoid enhancing factor (Lef-1) family of transcription factors. We show that E-cadherin, beta-catenin, and gamma-catenin (plakoglobin) are all concentrated in caveolae membranes. Moreover, we demonstrate that activation of beta-catenin/Lef-1 signaling by Wnt-1 or by overexpression of beta-catenin itself is inhibited by caveolin-1 expression. We also show that recombinant expression of caveolin-1 in caveolin-1 negative cells is sufficient to recruit beta-catenin to caveolae membranes, thereby blocking beta-catenin-mediated transactivation. These results suggest that caveolin-1 expression can modulate Wnt/beta-catenin/Lef-1 signaling by regulating the intracellular localization of beta-catenin.