Caveolin-1 has been linked to tumor progression and clinical outcome in breast cancer, but a clear resolution of its role as a prognostic marker is lacking. We assessed caveolin-1 levels in normal breast tissue and two breast cancer cohorts for which outcome data were available. We found that caveolin-1 was not expressed in normal breast luminal epithelium but was present in the epithelial compartment of some tumors. We found no association between caveolin-1 expression in the epithelial compartment and clinical outcome. However, high levels of caveolin-1 in the stromal tissue surrounding the tumor, rather than within tumor cells, associated strongly with reduced metastasis and improved survival (P < 0.0001). The onset of mammary tumors driven by Her2/neu overexpression was accelerated in mice lacking caveolin-1, thereby supporting the observation that the presence of caveolin-1 in the tumor microenvironment modulates tumor development. These studies suggest that stromal caveolin-1 expression may be a potential therapeutic target and a valuable prognostic indicator of breast cancer progression.