Apolipoprotein E (apoE) is widely expressed in mammalian tissues, and one of the important tissue-specific effects is the atheroprotection ascribed to macrophage-derived apoE in the arterial wall. However, underlying mechanisms are not well understood. In this study, using subcellular fractionation, confocal microscopy, and coimmunoprecipitation, we demonstrated that macrophage-derived apoE is internalized by endothelial cells and impacts the subcellular distribution/interaction of caveolin 1 (cav-1) and endothelial NO synthase (eNOS). The addition of apoE disrupts the heteromeric complex formed between cav-1 and eNOS, and increases NO production. Sterol and oxysterol enhance endothelial cav-1/eNOS interaction and suppress NO production, but these effects are reversed by apoE. Silencing endothelial cav-1 attenuates apoE-induced NO production, establishing the importance of the cav-1-eNOS interaction for the increment in endothelial NO produced by apoE. Consistent with these observations, macrophage-derived apoE significantly improves vasodilation to acetylcholine in resistance arteries isolated from adipose tissue of obese humans. We conclude that macrophage-derived apoE enhances endothelial NO production by disrupting the inhibitory interaction of eNOS with cav-1. These results establish a novel mechanism by which apoE modulates endothelial cell function.