The molecular mechanisms that regulate the organization and activity of the neuromuscular junction remain to be fully identified. Caveolae are invaginations of the plasma membrane. Caveolin-3 is the structural protein component of caveolae in muscle cells. We show that caveolin-3 is expressed at the neuromuscular junction, that it associates with the nicotinic acetylcholine receptor (nAChR), and that a lack of caveolin-3 inhibits clustering of the nAChR in myotubes. At the molecular level, we demonstrate that caveolin-3 is a novel muscle-specific kinase (MuSK) binding protein and that altered nAChR clustering in caveolin-3–lacking myotubes results from inhibition of agrin-induced phosphorylation/activation of MuSK and activation of Rac-1. Functional studies in caveolin-3 null mice show abnormal neuromuscular junction activity that is consistent with altered nAChR localization at the sarcolemma. Together, these data identify caveolin-3 as a critical component of the signaling machinery that drives nicotinic acetylcholine receptor clustering and controls neuromuscular junction function.