The molecular mechanisms mediating cell surface trafficking of caveolae are unknown. Caveolae bud from plasma membranes to form free carrier vesicles through a "pinching off" or fission process requiring cytosol and driven by GTP hydrolysis (Schnitzer, J.E., P. Oh, and D.P. McIntosh. 1996. Science. 274:239-242). Here, we use several independent techniques and functional assays ranging from cell-free to intact cell systems to establish a function for dynamin in the formation of transport vesicles from the endothelial cell plasma membrane by mediating fission at the neck of caveolae. This caveolar fission requires interaction with cytosolic dynamin as well as its hydrolysis of GTP. Expression of dynamin in cytosol as well as purified recombinant dynamin alone supports GTP-induced caveolar fission in a cell-free assay whereas its removal from cytosol or the addition to the cytosol of specific antibodies for dynamin inhibits this fission. Overexpression of mutant dynamin lacking normal GTPase activity not only inhibits GTP-induced fission and budding of caveolae but also prevents caveolae-mediated internalization of cholera toxin B chain in intact and permeabilized endothelial cells. Analysis of endothelium in vivo by subcellular fractionation and immunomicroscopy shows that dynamin is concentrated on caveolae, primarily at the expected site of action, their necks. Thus, through its ability to oligomerize, dynamin appears to form a structural collar around the neck of caveolae that hydrolyzes GTP to mediate internalization via the fission of caveolae from the plasma membrane to form free transport vesicles.