The urokinase plasminogen activator receptor (uPAR), a glycosylphosphatidylinositol-linked glycoprotein, plays a central role in the regulation of pericellular proteolysis and participates in events leading to cell activation. Here, we demonstrate that uPAR, on a human melanoma cell line, is localized in caveolae, flask-shaped microinvaginations of the plasma membrane found in a variety of cell types. Indirect immunofluorescence with anti-uPAR antibodies on the melanoma cells showed a punctated staining pattern that accumulated to stretches along sides of cell-cell contact and membrane ruffles. uPAR colocalized with caveolin, a characteristic protein in the coat of caveolae, as demonstrated by double staining with specific antibodies. Further, uPAR could be directly localized in caveolae by in vivo immunoelectron microscopy. Both uPAR and its ligand, uPA, were present in caveolae enriched low density Triton X-100 insoluble complexes, as shown by immunoblotting. From such complexes, caveolin could be coprecipitated with uPAR-specific antibodies suggesting a close spatial association between uPAR and caveolin that might have implications for the signal transduction mediated by uPAR. Further, functional studies indicated that the localization of uPAR and its ligand in caveolae enhances pericellular plasminogen activation, since treatment of the cells with drugs that interfere with the structural integrity of caveolae, such as nystatin, markedly reduced cell surface plasmin generation. Thus, caveolae promote efficient cell surface plasminogen activation by clustering uPAR, uPA, and possibly other protease receptors in one membrane compartment.