Using a combination of wild-type (WT) and caveolin-2 (Cav-2) knockout along with retroviral reexpression approaches, we provide the evidence for the negative role of Cav-2 in regulating anti-proliferative function and signaling of transforming growth factor β (TGF-β) in endothelial cells (ECs). Although, TGF-β had a modest inhibitory effect on WT ECs, it profoundly inhibited proliferation of Cav-2 knockout ECs. To confirm the specificity of the observed difference in response to TGF-β, we have stably reexpressed Cav-2 in Cav-2 knockout ECs using a retroviral approach. Similar to WT ECs, the anti-proliferative effect of TGF-β was dramatically reduced in the Cav-2 reexpressing ECs. The reduced anti-proliferative effect of TGF-β in Cav-2-positive cells was evidenced by three independent proliferation assays: 3-(4,5-dimethylthiazol-2-yl)-2,5-diphenyltetrazolium bromide (MTT), cell count, and bromodeoxyuridine incorporation and correlated with a loss of TGF-β-mediated upregulation of cell cycle inhibitor p27 and subsequent reduction of the levels of hyperphosphorylated (inactive) form of the retinoblastoma protein in Cav-2 reexpressing ECs. Mechanistically, Cav-2 inhibits anti-proliferative action of TGF-β by suppressing Alk5-Smad2/3 pathway manifested by reduced magnitude and length of TGF-β-induced Smad2/3 phosphorylation as well as activation of activin receptor-like kinase-5 (Alk5)-Smad2/3 target genes plasminogen activator inhibitor-1 and collagen type I in Cav-2-positive ECs. Expression of Cav-2 does not appear to significantly change targeting of TGF-β receptors I and Smad2/3 to caveolar and lipid raft microdomains as determined by sucrose fractionation gradient. Overall, the negative regulation of TGF-β signaling and function by Cav-2 is independent of Cav-1 expression levels and is not because of changing targeting of Cav-1 protein to plasma membrane lipid raft/caveolar domains.