Caveolin-1 has been reported to regulate apoptosis, lipid metabolism, and endocytosis in macrophages. In the present study, we demonstrate that caveolin-1 can act as a potent immunomodulatory molecule. We first observed caveolin-1 expression in murine alveolar macrophages by Western blotting and immunofluorescence microscopy. Loss-of-function experiments using small interfering RNA showed that down regulating caveolin-1 expression in murine alveolar and peritoneal macrophages increased LPS-induced proinflammatory cytokine TNF-alpha and IL-6 production but decreased anti-inflammatory cytokine IL-10 production. Gain-of-function experiments demonstrated that overexpression of caveolin-1 in RAW264.7 cells decreased LPS-induced TNF-alpha and IL-6 production and augmented IL-10 production. p38 mitogen-activated protein kinase (MAPK) phosphorylation was increased by overexpressing caveolin-1 in RAW264.7 cells, whereas c-Jun N-terminal kinase, extracellular signal-regulated kinase MAPK, and Akt phosphorylation were inhibited. The antiinflammatory modulation of LPS-induced cytokine production by caveolin-1 was significantly abrogated by the administration of p38 inhibitor SB203580 in RAW264.7 cells. Peritoneal macrophages isolated from MKK3 null mice did not demonstrate any modulation of LPS-induced cytokine production by caveolin-1. LPS-induced activation of NF-kappaB and AP-1 determined by electrophoretic mobility shift assay were significantly reduced by overexpressing caveolin-1 in RAW264.7 cells. The reductions were attenuated by the administration of p38 inhibitor SB203580. Taken together, our data suggest that caveolin-1 acts as a potent immunomodulatory effector molecule in immune cells and that the regulation of LPS-induced cytokine production by caveolin-1 involves the MKK3/p38 MAPK pathway.