Caveolin-1 (Cav1) is an integral plasma membrane protein and a complex regulator of signal transduction. The Signal Transducer and Activator of Transcription-3 (Stat3) is activated by a number of receptor and non-receptor tyrosine kinases and is positively implicated in cancer. Despite extensive efforts, the relationship between Cav1 and Stat3 has been a matter of controversy. We previously demonstrated that engagement of E- or N-cadherin or cadherin-11 cell to cell adhesion molecules, as occurs with confluence of cultured cells, triggers a dramatic increase in the levels of tyr705 phosphorylated i.e. activated Stat3, by a mechanism requiring the cRac1 small GTPase. Since confluence was not taken into account in previous studies, we revisited the question of the relationship between Cav1 and Stat3-ptyr705 in non-transformed mouse fibroblasts and in human lung carcinoma cells, by examining their effect at different cell densities. Our results unequivocally demonstrate that Cav1 downregulates cadherin-11, by a mechanism which requires the Cav1 scaffolding domain. This cadherin-11 downregulation, in turn, leads to a reduction in cRac1 and Stat3 activity levels. Furthermore, in a feedback loop possibly through p53 upregulation, Stat3 downregulation increases Cav1 levels. Our data reveal the presence of a potent, negative regulatory loop between Cav1 and cadherin-11/Stat3, leading to Stat3 inhibition and apoptosis.