We hypothesized that the maintenance of vascular homeostasis is critically dependent on the expression and reciprocal regulation of caveolin-1 (Cav-1) and endothelial nitric oxide synthase (eNOS) in endothelial cells (ECs). Skeletal muscle biopsies from subjects with type 2 diabetes showed 50% less Cav-1 and eNOS than those from lean healthy controls. The Cav-1:eNOS expression ratio was 200:1 in primary culture human ECs. Cav-1 small interfering RNA (siRNA) reduced eNOS protein and gene expression in association with a twofold increase in eNOS phosphorylation and nitrate production per molecule of eNOS, which was reversed in cells overexpressing Adv-Cav-1-GFP. Upon addition of the Ca2+ ionophore A23187 to activate eNOS, we observed eNOS Ser1177 phosphorylation, its translocation to β-catenin-positive cell-cell junctions, and increased colocalization of eNOS and Cav-1 within 5 min. We also observed Cav-1 S-nitrosylation and destabilization of Cav-1 oligomers in cells treated with A23187 as well as insulin or albumin, and this could be blocked by L-NAME, PP2, or eNOS siRNA. Finally, caveola-mediated endocytosis of albumin or insulin was reduced by Cav-1 or eNOS siRNA, and the effect of Cav-1 siRNA was rescued by Adv-Cav-1-GFP. Thus, Cav-1 stabilizes eNOS expression and regulates its activity, whereas eNOS-derived NO promotes caveola-mediated endocytosis.