Caveolin-3, a muscle-specific caveolin-related protein, is the principal structural protein of caveolae membrane domains in striated muscle cell types (cardiac and skeletal). Autosomal dominant limb girdle muscular dystrophy (LGMD-1C) in humans is due to mutations within the caveolin-3 gene: (i) a 9-base pair microdeletion that removes three amino acids within the caveolin scaffolding domain (DeltaTFT) or (ii) a missense mutation within the membrane spanning domain (P --> L). The molecular mechanisms by which these two mutations cause muscular dystrophy remain unknown. Here, we investigate the phenotypic behavior of these caveolin-3 mutations using heterologous expression. Wild type caveolin-3 or caveolin-3 mutants were transiently expressed in NIH 3T3 cells. LGMD-1C mutants of caveolin-3 (DeltaTFT or P --> L) were primarily retained at the level of a perinuclear compartment that we identified as the Golgi complex in double-labeling experiments, while wild type caveolin-3 was efficiently targeted to the plasma membrane. In accordance with these observations, caveolin-3 mutants formed oligomers of a much larger size than wild type caveolin-3 and were excluded from caveolae-enriched membrane fractions as seen by sucrose density gradient centrifugation. In addition, these caveolin-3 mutants were expressed at significantly lower levels and had a dramatically shortened half-life of approximately 45-60 min. However, caveolin-3 mutants were palmitoylated to the same extent as wild type caveolin-3, indicating that targeting to the plasma membrane is not required for palmitoylation of caveolin-3. In conclusion, we show that LGMD-1C mutations lead to formation of unstable high molecular mass aggregates of caveolin-3 that are retained within the Golgi complex and are not targeted to the plasma membrane. Consistent with its autosomal dominant form of genetic transmission, we demonstrate that LGMD-1C mutants of caveolin-3 behave in a dominant-negative fashion, causing the retention of wild type caveolin-3 at the level of the Golgi. These data provide a molecular explanation for why caveolin-3 levels are down-regulated in patients with this form of limb girdle muscular dystrophy (LGMD-1C).