The ability to regulate proteolytic functions is critical to cell biology. We describe events that regulate the initiation of the coagulation cascade on endothelial cell surfaces. The transmembrane protease receptor tissue factor (TF) triggers coagulation by forming an enzymatic complex with the serine protease factor VIIa (VIIa) that activates substrate factor X to the protease factor Xa (Xa). Feedback inhibition of the TF-VIIa enzymatic complex is achieved by the formation of a quaternary complex of TF-VIIa, Xa, and the Kunitz-type inhibitor tissue factor pathway inhibitor (TFPI). Concomitant with the downregulation of TF-VIIa function on endothelial cells, we demonstrate by immunogold EM that TF redistributes to caveolae. Consistently, TF translocates from the Triton X-100-soluble membrane fractions to low-density, detergent-insoluble microdomains that inefficiently support TF-VIIa proteolytic function. Downregulation of TF-VIIa function is dependent on quaternary complex formation with TFPI that is detected predominantly in detergent-insoluble microdomains. Partitioning of TFPI into low-density fractions results from the association of the inhibitor with glycosyl phosphatidylinositol anchored binding sites on external membranes. Free Xa is not efficiently bound by cell-associated TFPI; hence, we propose that the transient ternary complex of TF-VIIa with Xa supports translocation and assembly with TFPI in glycosphingolipid-rich microdomains. The redistribution of TF provides evidence for an assembly-dependent translocation of the inhibited TF initiation complex into caveolae, thus implicating caveolae in the regulation of cell surface proteolytic activity.