The ganglioside-specific sialidase Neu3 has been suggested to play essential roles in regulation of cell surface functions because of its major localization in the plasma membrane and strict substrate preference for gangliosides involved in signal transduction. Here we show that human Neu3 sialidase is enriched in caveolae microdomains and closely associates with caveolin like other caveolin-binding signaling molecules. Using HeLa cells and Neu3-transfected COS-1 cells, endogenous and exogenous Neu3 was found to co-concentrate caveolin-1 in low density Triton X-100-insoluble membrane fractions on sucrose density gradients of the respective cell extracts, as assessed by enzyme activity assays and immunoblotting with a monoclonal antibody to human Neu3. The presence of a putative caveolin-binding motif within Neu3 prompted us to determine whether Neu3 binds to caveolin-1. In transfectants expressing a polyhistidine-tagged form of Neu3, caveolin-1 co-eluted with Neu3 on affinity column chromatography. A mutation with a single amino acid change in the caveolin-binding motif led to inhibition of recruitment of the sialidase to the microdomain, accompanied by reduction of the enzyme activity. Neu3 also failed to associate with caveolin-enriched microdomains by cholesterol depletion with beta-cyclodextrin (with concomitant decrease of the sialidase activity), whereas Neu3 was activated by increased caveolin-1 expression. The tight association of Neu3 with caveolin-1 was supported further by co-immunoprecipitation of Neu3 by anti-caveolin-1 antibody. These results strongly suggest that Neu3 functions as a caveolin-related signaling molecule within caveolin-rich microdomains.