Membrane-type 1 matrix metalloproteinase (MT1-MMP) is a membrane-associated MMP that has been recently reported to have a central role in tumour cell invasion. Here we report that both the native and overexpressed recombinant forms of MT1-MMP are highly enriched in low-density Triton X-100-insoluble membrane domains that contain the caveolar marker protein caveolin 1. Moreover, the MT1-MMP-dependent activation of proMMP-2 induced by concanavalin A and cytochalasin D was correlated with the processing of MT1-MMP to its proteolytically inactive 43 kDa fragment in U-87 glioblastoma and HT-1080 fibrosarcoma tumour cell lines; this processing was also preferentially observed within the caveolar fraction. Interestingly, whereas the expression of caveolin 1 had no effect on the MT1-MMP-dependent activation of proMMP-2, its co-expression with MT1-MMP antagonized the MT1-MMP-increased migratory potential of COS-7 cells. Taken together, our results provide evidence that MT1-MMP is preferentially compartmentalized and proteolytically processed in caveolae of cancer cells. The inhibition of MT1-MMP-dependent cell migration by caveolin 1 also suggests that the localization of MT1-MMP to caveolin-enriched domains might have an important function in the control of its enzymic activity.