In an investigation of the mechanism underlying the functional sublocalization of glycosyltransferases within the Golgi apparatus, caveolin-1 was identified as a possible cellular factor. Caveolin-1 appears to regulate the localization of N-acetylglucosaminyltransferase III (GnT-III) in the intra-Golgi subcompartment. Structural analyses of total cellular N-glycans indicated that the overexpression of GnT-III in human hepatoma cells, in which caveolin-1 is not expressed, failed to reduce branch formation, whereas expression of caveolin-1 led to a dramatic decrease in the extent of branching with no enhancement in GnT-III activity. Because the addition of a bisecting GlcNAc by GnT-III to the core beta-Man in N-glycans prevents the action of GnT-IV and GnT-V, both of which are involved in branch formation, this result suggests that caveolin-1 facilitates the prior action of GnT-III, relative to the other GnTs, on the nascent sugar chains in the Golgi apparatus and that GnT-III is redistributed in the earlier Golgi subcompartment by caveolin-1. Indeed, when caveolin-1 was expressed in human hepatoma cells, it was found to be co-localized with GnT-III, as evidenced by the fractionation of Triton X-100-insoluble cellular membranes by density gradient ultracentrifugation. Caveolin-1 may modify the biosynthetic pathway of sugar chains via the regulation of the intra-Golgi subcompartment localization of this key glycosyltransferase.