Caveolin-3, the most recently recognized member of the caveolin gene family, is muscle-specific and is found in both cardiac and skeletal muscle, as well as smooth muscle cells. Several independent lines of evidence indicate that caveolin-3 is localized to the sarcolemma, where it associates with the dystrophin-glycoprotein complex. However, it remains unknown which component of the dystrophin complex interacts with caveolin-3. Here, we demonstrate that caveolin-3 directly interacts with beta-dystroglycan, an integral membrane component of the dystrophin complex. Our results indicate that caveolin-3 co-localizes, co-fractionates, and co-immunoprecipitates with a fusion protein containing the cytoplasmic tail of beta-dystroglycan. In addition, we show that a novel WW-like domain within caveolin-3 directly recognizes the extreme C terminus of beta-dystroglycan that contains a PPXY motif. As the WW domain of dystrophin recognizes the same site within beta-dystroglycan, we also demonstrate that caveolin-3 can effectively block the interaction of dystrophin with beta-dystroglycan. In this regard, interaction of caveolin-3 with beta-dystroglycan may competitively regulate the recruitment of dystrophin to the sarcolemma. We discuss the possible implications of our findings in the context of Duchenne muscular dystrophy.