Caveolin-1 binds cholesterol and caveola formation involves caveolin-1 oligomerization and cholesterol association. The role of cholesterol in caveolae has so far been addressed by methods that compromise membrane integrity and abolish caveolar invaginations. To study the importance of sterol specificity for the structure and function of caveolae, we replaced cholesterol in mammalian cells with its immediate precursor desmosterol by inhibiting 24-dehydrocholesterol reductase. Desmosterol could substitute for cholesterol in maintaining cell growth, membrane integrity, and preserving caveolar invaginations. However, in desmosterol cells the affinity of caveolin-1 for sterol and the stability of caveolin oligomers were decreased. Moreover, caveolar invaginations became more heterogeneous in dimensions and in the number of caveolin-1 molecules per caveola. Despite the altered caveolar structure, caveolar ligand uptake was only moderately inhibited. We found that in desmosterol cells, Src kinase phosphorylated Cav1 at Tyr(14) more avidly than in cholesterol cells. Taken the role of Cav1 Tyr(14) phosphorylation in caveolar endocytosis, this may help to preserve caveolar uptake in desmosterol cells. We conclude that a sterol C24 double bond interferes with caveolin-sterol interaction and perturbs caveolar morphology but facilitates Cav1 Src phosphorylation and allows caveolar endocytosis. More generally, substitution of cholesterol by a structurally closely related sterol provides a method to selectively modify membrane protein-sterol affinity, structure and function of cholesterol-dependent domains without compromising membrane integrity.