We investigated the role of caveolae in the mechanism of increased pulmonary vascular permeability and edema formation induced by the activation of pulmonary neutrophils (PMNs). We observed that the increase in lung vascular permeability induced by the activation of PMNs required caveolin-1, the caveolae scaffold protein. The permeability increase induced by PMN activation was blocked in caveolin-1 knockout mice and by suppressing caveolin-1 expression in rats. The response was also dependent on Src phosphorylation of caveolin-1 known to activate caveolae-mediated endocytosis in endothelial cells. To address the role of PMN interaction with endothelial cells, we used an intercellular adhesion molecule (ICAM)-1 blocking monoclonal antibody. Preventing the ICAM-1–mediated PMN binding to endothelial cells abrogated Src phosphorylation of caveolin-1, as well as the increase in endothelial permeability. Direct ICAM-1 activation by crosslinking recapitulated these responses, suggesting that ICAM-1 activates caveolin-1 signaling responsible for caveolae-mediated endothelial hyperpermeability. Our results provide support for the novel concept that a large component of pulmonary vascular hyperpermeability induced by activation of PMNs adherent to the vessel wall is dependent on signaling via caveolin-1 and increased caveolae-mediated transcytosis. Thus, it is important to consider the role of the transendothelial vesicular permeability pathway that contributes to edema formation in developing therapeutic interventions against PMN-mediated inflammatory diseases such as acute lung injury.