Lipid phosphate phosphohydrolase (LPP) has recently been proposed to have roles in signal transduction, acting sequentially to phospholipase D (PLD) and in attenuating the effects of phospholipid growth factors on cellular proliferation. In this study, LPP activity is reported to be enriched in lipid-rich signalling platforms isolated from rat lung tissue, isolated rat type II cells and type II cell-mouse lung epithelial cell lines (MLE12 and MLE15). Lung and cell line caveolin-enriched domains (CEDs), prepared on the basis of their detergent-insolubility in Triton X-100, contain caveolin-1 and protein kinase C isoforms. The LPP3 isoform was predominantly localized to rat lung CEDs. These lipid-rich domains, including those from isolated rat type II cells, were enriched both in phosphatidylcholine plus sphingomyelin (PC+SM) and cholesterol. Saponin treatment of MLE15 cells shifted the LPP activity, cholesterol, PC+SM and caveolin-1 from lipid microdomains to detergent-soluble fractions. Elevated LPP activity and LPP1/1a protein are present in caveolae from MLE15 cells prepared using the cationic-colloidal-silica method. In contrast, total plasma membranes had a higher abundance of LPP1/1a protein with low LPP activity. Phorbol ester treatment caused a 3.8-fold increase in LPP specific activity in MLE12 CEDs. Thus the activated form of LPP1/1a may be recruited into caveolae/rafts. Transdifferentiation of type II cells into a type I-like cell demonstrated enrichment in caveolin-1 levels and LPP activity. These results indicate that LPP is localized in caveolae and/or rafts in lung tissue, isolated type II cells and type II cell lines and is consistent with a role for LPP in both caveolae/raft signalling and caveolar dynamics.