Membrane-type 1 matrix metalloproteinase (MT1-MMP) is a zinc-dependent proteinase found in cholesterol-rich lipid rafts on the plasma membrane. MT1-MMP hydrolyzes extracellular matrix (ECM) proteins, activates pro-matrix metalloproteinase-2 (proMMP-2) and plays an important role in ECM remodeling, cancer cell migration and metastasis. The role of caveolin-1, an integral protein of caveolae, in the activation of MT1-MMP remains largely unknown. Here, we show that the expression of caveolin-1 attenuates the activation of proMMP-2, reduces proteolytic cleavage of ECM and inhibits cell migration. We utilized the cytoplasmic tail domain deletion (DeltaCT) or the E240A mutant of MT1-MMP. Co-expression of caveolin-1 with the wild-type or the DeltaCT MT1-MMP decreased the proMMP-2 activation and inhibited collagen degradation and cell migration. Caveolin-1 had no effect on the catalytically inert E240A MT1-MMP. Our findings suggest that caveolin-1 is essential in the down-regulation of MT1-MMP activity by promoting internalization from the cell surface.