Several cell surface eukaryotic proteins have a glycosylphosphoinositol lipid (GPI) modification at the carboxy-terminal end that serves as their sole means of membrane anchoring. In this report we review recent observations regarding the surface dynamics of GPI-anchored proteins. We discuss the association of GPI-anchored proteins with caveolae at the cell surface and their role in signal transduction as determined by the ability of GPI-anchored proteins to form detergent-insoluble complexes enriched in several cytoplasmic proteins including non-receptor type tyrosine kinases and caveolin/VIP-21, a component of the striated coat of caveolae. We have shown by immunofluorescence and electron microscopy that GPI-anchored proteins are not constitutively concentrated in caveolae but may be enriched in these structures only after cross-linking. While caveolae occupy only a small fraction of the cell surface (< 4%) almost all of the GPI-anchored protein at the cell surface becomes incorporated into detergent-insoluble low-density complexes, suggesting that these proteins are intrinsically detergent-insoluble in the milieu of the plasma membrane, and their co-purification with caveolin is not reflective of their native distribution. The finding that GPI-anchored proteins are not normally clustered over caveolae raised questions about the involvement of caveolae in the internalization of GPI-anchored proteins. In recent studies we have found that GPI-anchored proteins are internalized into bona fide endosomes wherein they appear to be sorted from bulk membrane components. The implications of these observations on the biology of GPI-anchored proteins are discussed.