Caveolae are plasma membrane invaginations where key signaling elements are concentrated. In this report, both biochemical and histochemical analyses demonstrate that the amyloid precursor protein (APP), a source of Abeta amyloid peptide, is enriched within caveolae. Caveolin-1, a principal component of caveolae, is physically associated with APP, and the cytoplasmic domain of APP directly participates in this binding. The characteristic C-terminal fragment that results from APP processing by alpha-secretase, an as yet unidentified enzyme that cleaves APP within the Abeta amyloid sequence, was also localized within these caveolae-enriched fractions. Further analysis by cell surface biotinylation revealed that this cleavage event occurs at the cell surface. Importantly, alpha-secretase processing was significantly promoted by recombinant overexpression of caveolin in intact cells, resulting in increased secretion of the soluble extracellular domain of APP. Conversely, caveolin depletion using antisense oligonucletotides prevented this cleavage event. Our current results indicate that caveolae and caveolins may play a pivotal role in the alpha-secretase-mediated proteolysis of APP in vivo.