Recently, it was shown that caveolin-1 can be redirected from the cell surface to intracellular lipid droplets in a variety of cell types. Here, we directly address the role of caveolin-1 in lipid droplet formation and breakdown, showing that caveolin-1 null mice exhibit markedly attenuated lipolytic activity. Mechanistically, although the activity of protein kinase A (PKA) was greatly increased in caveolin-1 null adipocytes, the phosphorylation of perilipin was dramatically reduced, indicating that caveolin-1 may facilitate the PKA-mediated phosphorylation of perilipin. In support of this hypothesis, coimmunoprecipitation experiments revealed that treatment with a β3-adrenergic receptor agonist resulted in ligand-induced complex formation between perilipin, caveolin-1, and the catalytic subunit of PKA in wild-type but not in caveolin-1 null fat pads. We also show that caveolin-1 expression is important for efficient lipid droplet formation because caveolin-1 null embryonic fibroblasts stably transfected with perilipin accumulated ∼4.5-fold less lipid than perilipin-transfected wild-type cells. Finally, high-pressure freeze-substitution electron microscopy of adipose tissue revealed dramatic perturbations in the architecture of the "lipid droplet cortex" (the interface between the lipid droplet surface and the cytoplasm) in caveolin-1 null perigonadal adipocytes. Taken together, our data provide the first molecular genetic evidence that caveolin-1 plays a critical functional and structural role in the modulation of both lipid droplet biogenesis and metabolism in vivo.