TNF-related apoptosis-inducing ligand (TRAIL) selectively induces apoptosis in transformed and tumor cells but not in normal cells, making it a promising agent for cancer therapy. However, many cancer cells are resistant to TRAIL, and the underlying mechanisms are not fully understood. Here, we show that the regulation of the PP2A and Src interaction plays a critical role in TRAIL resistance. Specifically, we show that TRAIL treatment activates the tyrosine kinase Src, which subsequently phosphorylates caspase-8 at tyrosine 380, leading to the inhibition of caspase-8 activation. We also show that upon TRAIL treatment, Src, caspase-8, and PP2A/C (a catalytic subunit of the PP2A phosphatase) are redistributed into lipid rafts, a microdomain of the plasma membrane enriched with cholesterol, where PP2A dephosphorylates Src at tyrosine 418 and in turn inhibits caspase-8 phosphorylation. Furthermore, we find that TRAIL treatment causes PP2A/C degradation. These data suggest that the balance between Src-mediated caspase-8 phosphorylation and the inactivation of Src-mediated caspase-8 phosphorylation by PP2A determines the outcome of TRAIL treatment in breast cancer cells. Therefore, this work identifies a novel mechanism by which the interaction between PP2A and Src in the context of caspase-8 activation modulates TRAIL sensitivity in cancer cells.