Caveolin-1 (Cav-1) is the principal structural protein of caveolae membranes that are found in most cells types, including mammary epithelial cells. Recently, we mapped the human CAV1 gene to a suspected tumor suppressor locus (7q31.1/D7S522) that is deleted in a variety of human cancers, as well as mammary tumors. In addition, the CAV1 gene is mutated (P132L) in up to ∼16% of human breast cancers. The mechanism by which deletion or mutation of the Cav-1 gene contributes to mammary tumorigenesis remains unknown. To understand the role of the Cav-1 (P132L) mutation in the pathogenesis of human breast cancers, we generated the same mutation in wild-type (WT) Cav-1 and studied its behavior in cultured cells. Interestingly, the P132L mutation leads to formation of misfolded Cav-1 oligomers that are retained within the Golgi complex and are not targeted to caveolae or the plasma membrane. To examine whether the Cav-1 (P132L) mutant behaves in a dominant-negative manner, we next co-transfected cells with Cav-1 (P132L) and WT Cav-1, and evaluated their caveolar targeting. Our results indicate that Cav-1 (P132L) behaves in a dominant-negative manner, causing the mislocalization and intracellular retention of WT Cav-1. Virtually identical results were obtained when Cav-1 (P132L) was stably expressed at physiological levels in a nontransformed human mammary epithelial cell line (hTERT-HME1). These data provide a molecular explanation for why only a single mutated CAV1 allele is found in patients with breast cancer. Thus, we next investigated if functional inactivation of Cav-1 gene expression leads to mammary tumorigenesis in vivo. For this purpose, we performed mammary gland analysis on Cav-1-deficient mice (-/-) that harbor a targeted disruption of the Cav-1 gene (a null mutation). Interestingly, we show that inactivation of Cav-1 gene expression leads to mammary epithelial cell hyperplasia, even in 6-week-old virgin female mice. These data clearly implicate loss of functional Cav-1 in the pathogenesis of mammary epithelial cell hyperplasia, and suggest that Cav-1-null mice represent a novel animal model to study premalignant mammary disease.