Membrane type-1 matrix metalloproteinase (MT1-MMP) is a key enzyme in cell locomotion and tissue remodeling. Trafficking to the plasma membrane and internalization into the transient storage compartment both regulate the cell surface presentation of MT1-MMP. Our data indicate that mutant MT1-MMP lacking the cytoplasmic tail is recruited to the caveolae-enriched lipid raft membrane microdomains in breast carcinoma MCF7 cells. In contrast, the wild-type protease is not permanently associated with lipid rafts. Trafficking to lipid rafts correlated with poor internalization and the persistent presentation of MT1-MMP at the cell surface. The tail mutant efficiently functioned in inducing the activation of the latent proMMP-2 zymogen, matrix remodeling, and contraction of three-dimensional collagen lattices. Recruitment of the tail mutant to lipid raft antagonized, however, the cleavage of the plasma membrane-associated E-cadherin. These events limited the contribution of the tail mutant to cell locomotion and malignant growth. It is conceivable that the tail peptide sequence plays a crucial role in the translocations of MT1-MMP across the cell and contributes to coordinated cellular functions. It is tempting to hypothesize that the mechanisms involved in trafficking of MT1-MMP to caveolin-enriched lipid rafts may be targeted in a clinically advantageous manner.