Caveolin-1, the caveolae scaffolding protein, binds to and negatively regulates eNOS activity. As caveolin-1 also regulates caveolae-mediated endocytosis after activation of the 60-kDa albumin-binding glycoprotein gp60 in endothelial cells, we addressed the possibility that endothelial NO synthase (eNOS)-dependent NO production was functionally coupled to caveolae internalization. We observed that gp60-induced activation of endocytosis increased NO production within 2 minutes and up to 20 minutes. NOS inhibitor N(G)-nitro-L-arginine (L-NNA) prevented the NO production. To determine the role of caveolae internalization in the mechanism of NO production, we expressed dominant-negative dynamin-2 mutant (K44A) or treated cells with methyl-beta-cyclodextrin. Both interventions inhibited caveolae-mediated endocytosis and NO generation induced by gp60. We determined the role of signaling via Src kinase in the observed coupling of endocytosis to eNOS activation. Src activation induced the phosphorylation of caveolin-1, Akt and eNOS, and promoted dissociation of eNOS from caveolin-1. Inhibitors of Src kinase and Akt also prevented NO production. In isolated perfused mouse lungs, gp60 activation induced NO-dependent vasodilation, whereas the response was attenuated in eNOS(-/-) or caveolin-1(-/-) lungs. Together, these results demonstrate a critical role of caveolae-mediated endocytosis in regulating eNOS activation in endothelial cells and thereby the NO-dependent vasomotor tone.