On vascular endothelial growth factor (VEGF) stimulation, both VEGF R1 and R2 receptors were phosphorylated in ovine fetoplacental artery endothelial (oFPAE) cells. Treatment with VEGF stimulated both time- and dose-dependent activation of extracellular signal-regulated kinase (ERK2/1) in oFPAE cells. VEGF-induced ERK2/1 activation was mediated by VEGFR2, but not VEGFR1, and was linked to intracellular calcium, protein kinase C and Raf-1. VEGF stimulated oFPAE cell proliferation, migration and tube formation in vitro. Blockade of ERK2/1 pathway attenuated VEGF-induced cell proliferation and tube formation but failed to inhibit migration in oFPAE cells. Disruption of caveolae by cholesterol depletion with methyl--cyclodextrin (MCD) or by downregulation of its structural protein caveolin-1 blunted VEGF-induced ERK2/1 activation, proliferation and tube formation in oFPAE cells, indicating an essential role of integral caveolae in these VEGF induced responses. Adenoviral overexpression of caveolin-1 and addition of a caveolin scaffolding domain peptide also inhibited VEGF-stimulated ERK2/1 activation, cell proliferation and tube formation in oFPAE cells. Furthermore, molecules comprising the ERK2/1 signaling module, including VEGFR2, PKC, Raf-1, MEK1/2 and ERK2/1, resided with caveolin-1 in caveolae. VEGF transiently stimulated ERK2/1 activation in the caveolae similarly as in intact cells. Caveolae disruption greatly diminished ERK2/1 activation by VEGF in oFPAE cell caveolae. We conclude that caveolae function as a platform for compartmentalizing the VEGF-induced ERK2/1 signaling module. Caveolin-1 and caveolae play a paradoxical role in regulating VEGF-induced ERK2/1 activation and in vitro angiogenesis as evidenced by the similar inhibitory effects of downregulation and overexpression of caveolin-1 and disruption of caveolae in oFPAE cells.