Estrogen receptor alpha (ERalpha) is a soluble protein that mediates the effects of the gonadal estrogens such as 17beta-estradiol. Upon ligand binding, a cytoplasmic pool of ERalpha translocates to the nucleus, where it acts as a transcription factor, driving the expression of genes that contain estrogen-response elements. The activity of ERalpha is regulated by a number of proteins, including cytosolic chaperones and nuclear cofactors. Here, we show that caveolin-1 potentiates ERalpha-mediated signal transduction. Coexpression of caveolin-1 and ERalpha resulted in ligand-independent translocation of ERalpha to the nucleus as shown by both cell fractionation and immunofluorescence microscopic studies. Similarly, caveolin-1 augmented both ligand-independent and ligand-dependent ERalpha signaling as measured using a estrogen-response element-based luciferase reporter assay. Caveolin-1-mediated activation of ERalpha was sensitive to a well known ER antagonist, 4-hydroxytamoxifen. However, much higher concentrations of tamoxifen were required to mediate inhibition in the presence of caveolin-1. Interestingly, caveolin-1 expression also synergized with a constitutively active, ligand-independent ERalpha mutant, dramatically illustrating the potent stimulatory effect of caveolin-1 in this receptor system. Taken together, our results identify caveolin-1 as a new positive regulator of ERalpha signal transduction.