Recent Monte Carlo simulation studies of a model superheated liquid [Punnathanam and Corti, Ind. Eng. Chem. Res. 41, 1113 (2002)] suggest that cavity formation plays an important role in the process of homogeneous bubble nucleation. These simulations revealed that when spherical cavities beyond some certain size, i.e., the so-called critical cavity, were placed inside the superheated Lennard-Jones liquid, an instability was generated that led to phase separation towards the stable vapor phase. In this paper, we explore further the relevance of cavities, and the critical cavity in particular, to the molecular mechanism of homogeneous bubble nucleation. Density-functional theory (DFT) calculations are used to verify the existence of the critical cavity within the superheated Lennard-Jones liquid. In addition, DFT reveals that the critical cavity represents a limit of thermodynamic stability, further strengthening the connection between cavities and bubble nucleation. The DFT calculations also show that the size of the critical cavity is a lower bound to the size of the critical bubble and the work of formation of the critical cavity is a tight upper bound to the work of formation of the critical bubble. These results suggest that the free energy surface of bubble nucleation is influenced by the properties of the critical cavity, thereby possibly leading to a new picture of the molecular mechanism of bubble formation in superheated liquids. (C) 2003 American Institute of Physics.