CD26 is a T cell activation antigen that contains dipeptidyl peptidase IV activity and is known to bind adenosine deaminase. The mechanism by which CD26 costimulation potentiates T cell receptor-mediated T cell activation, leading to subsequent exertion of T cell effector function, is still not clearly defined. In this article, we demonstrate that CD26 localizes into lipid rafts, and targeting of CD26 to rafts is necessary for signaling events through CD26. Importantly, aggregation of CD26 by anti-CD26 mAb crosslinking also causes coaggregation of CD45 into rafts. Moreover, we show that CD26 directly binds to the cytoplasmic domain of CD45. Our results therefore indicate a mechanism whereby CD26 engagement promotes aggregation of lipid rafts and facilitates colocalization of CD45 to T cell receptor signaling molecules p56(Lck), ZAP-70, and TCRzeta, thereby enhancing protein tyrosine phosphorylation of various signaling molecules and subsequent interleukin-2 production.