Estrogen exposure is considered a significant risk factor for breast cancer development. Estrogen receptor (ER) alpha is expressed at low levels in normal epithelia, and its expression is dramatically up-regulated as transformation progresses during mammary hyperplasia and adenocarcinoma development. The mechanism(s) driving ERalpha up-regulation during mammary tumorigenesis remains unclear. Caveolin-1 (Cav-1) is the structural protein of plasmalemmal invaginations, termed caveolae, which functions as a tumor suppressor gene. Interestingly, Cav-1 dominant-negative mutations are exclusively found in ERalpha-positive breast cancer samples. In support of these clinical findings, ERalpha expression is increased in Cav-1 (-/-) null mammary epithelia, and estrogen stimulation further enhances the growth of Cav-1-deficient three-dimensional epithelial structures. These phenotypes correlate with augmented levels of cyclin D1. In addition, Cav-1 gene inactivation induces the accumulation of a cell population with the characteristics of adult mammary stem cells. Primary cultures of Cav-1 (-/-) mammary epithelial cells exhibit premalignant changes, such as abnormal lumen formation, epidermal growth factor-independent growth, defects in cell substrate attachment, and increased cell invasiveness. Thus, Cav-1 gene inactivation promotes premalignant alterations in mammary epithelia and induces increased ERalpha expression levels and the up-regulation of cyclin D1. As tumor formation is a multihit process, Cav-1 mutations that occur during the early stages of mammary transformation may be a critical upstream/initiating event leading to increased ERalpha levels.