We have characterized comparatively the subcellular distributions of caveolins-1 and -2, their interactions and their roles in caveolar formation in polarized epithelial cells. In Fischer rat thyroid (FRT) cells, which express low levels of caveolin-2 and no caveolin-1, caveolin-2 localizes exclusively to the Golgi complex but is partially redistributed to the plasma membrane upon co-expression of caveolin-1 by transfection or by adenovirus-mediated transduction. In Madin-Darby canine kidney (MDCK) cells, which constitutively express both caveolin-1 and -2, caveolin-2 localized to both the Golgi complex and to the plasma membrane, where it co-distributed with caveolin-1 in flat patches and in caveolae. In FRT cells, endogenous or overexpressed caveolin-2 did not associate with low density Triton insoluble membranes that floated in sucrose density gradients but was recruited to these membranes when co-expressed together with caveolin-1. In MDCK cells, both caveolin-1 and caveolin-2 associated with low density Triton-insoluble membranes. In FRT cells, transfection of caveolin-1 promoted the assembly of plasma membrane caveolae that localized preferentially (over 99%) to the basolateral surface, like constitutive caveolae of MDCK cells. In contrast, as expected from its intracellular distribution, endogenous or overexpressed caveolin-2 did not promote the assembly of caveolae; rather, it appeared to promote the assembly of intracellular vesicles in the peri-Golgi area. The data reported here demonstrate that caveolin-1 and -2 have different and complementary subcellular localizations and functional properties in polarized epithelial cells and suggest that the two proteins co-operate to carry out specific as yet unknown tasks between the Golgi complex and the cell surface.