Dysferlin and Caveolin-3 are plasma membrane proteins associated with muscular dystrophy. Patients with mutations in the CAV3 gene show dysferlin mislocalization in muscle cells. By utilizing caveolin-null cells, expression of caveolin mutants, and different mutants of dysferlin, we have dissected the site of action of caveolin with respect to dysferlin trafficking pathways. We now show that Caveolin-1 or -3 can facilitate exit of a dysferlin mutant that accumulates in the Golgi complex of Cav1(-/-) cells. In contrast, wild type dysferlin reaches the plasma membrane but is rapidly endocytosed in Cav1(-/-) cells. We demonstrate that the primary effect of caveolin is to cause surface retention of dysferlin. Caveolin-1 or Caveolin-3, but not specific caveolin mutants, inhibit endocytosis of dysferlin through a clathrin-independent pathway colocalizing with internalized glycosylphosphatidylinositol-anchored proteins. Our results provide new insights into the role of this endocytic pathway in surface remodeling of specific surface components. In addition, they highlight a novel mechanism of action of caveolins relevant to the pathogenic mechanisms underlying caveolin-associated disease.