Caveolae are specialized invaginated cell surface microdomains of undefined function. A cell-free system that reconstituted fission of caveolae from lung endothelial plasma membranes was developed. Addition of cytosol and the hydrolysis of guanosine triphosphate (GTP) induced caveolar fission. The budded caveolae were isolated as vesicles rich in caveolin and the sialoglycolipid G(M1) but not glycosylphosphatidylinositol (GPI)-anchored proteins. These vesicles contained the molecular machinery for endocytosis and transcytosis. In permeabilized endothelial cells, GTP stimulated, whereas GTP gamma S prevented, caveolar budding and endocytosis of the cholera toxin B chain to endosomes. Thus, caveolae may bud to form discrete carrier vesicles that participate in membrane trafficking.