CD26 is a widely distributed 110-kDa cell surface glycoprotein with an important role in T-cell costimulation. We demonstrated previously that CD26 binds to caveolin-1 in antigen-presenting cells, and following exogenous CD26 stimulation, Tollip and IRAK-1 disengage from caveolin-1 in antigen-presenting cells. IRAK-1 is then subsequently phosphorylated to up-regulate CD86 expression, resulting in subsequent T-cell proliferation. However, it is unclear whether caveolin-1 is a costimulatory ligand for CD26 in T-cells. Using soluble caveolin-1-Fc fusion protein, we now show that caveolin-1 is the costimulatory ligand for CD26, and that ligation of CD26 by caveolin-1 induces T-cell proliferation and NF-kappaB activation in a T-cell receptor/CD3-dependent manner. We also demonstrated that the cytoplasmic tail of CD26 interacts with CARMA1 in T-cells, resulting in signaling events that lead to NF-kappaB activation. Ligation of CD26 by caveolin-1 recruits a complex consisting of CD26, CARMA1, Bcl10, and IkappaB kinase to lipid rafts. Taken together, our findings provide novel insights into the regulation of T-cell costimulation via the CD26 molecule.