Rhabdomyosarcoma is the most common soft tissue sarcoma of childhood and adolescence. Despite advances in therapy, patients with histological variant of rhabdomyosarcoma known as alveolar rhabdomyosarcoma (ARMS) have a 5-year survival of less than 30%. Caveolin-1 (CAV1), encoding the structural component of cellular caveolae, is a suggested tumor suppressor gene involved in cell signaling. In the present study we report that compared to other forms of rhabdomyosarcoma (RMS) CAV1 expression is either undetectable or very low in ARMS cell lines and tumor samples. DNA methylation analysis of the promoter region and azacytidine-induced re-expression suggest the involvement of epigenetic mechanisms in the silencing of CAV1. Reintroduction of CAV1 in three of these cell lines impairs their clonogenic capacity and promotes features of muscular differentiation. In vitro, CAV1-expressing cells show high expression of Caveolin-3 (CAV3), a muscular differentiation marker. Blockade of MAPK signaling is also observed. In vivo, CAV1-expressing xenografts show growth delay, features of muscular differentiation and increased cell death. In summary, our results suggest that CAV1 could function as a potent tumor suppressor in ARMS tumors. Inhibition of CAV1 function therefore, could contribute to aberrant cell proliferation, leading to ARMS development.