Peroxisome proliferator-activated receptor γ (PPARγ) is a transcription factor that promotes differentiation and cell survival in the stomach. PPARγ upregulates and interacts with caveolin-1 (Cav1), a scaffold protein of Ras/mitogen-activated protein kinases (MAPKs). The cytoplasmic-to-nuclear localization of PPARγ is altered in gastric cancer (GC) patients, suggesting a so-far-unknown role for Cav1 in spatial regulation of PPARγ signaling. We show here that loss of Cav1 accelerated proliferation of normal stomach and GC cells in vitro and in vivo. Downregulation of Cav1 increased Ras/MAPK-dependent phosphorylation of serine 84 in PPARγ and enhanced nuclear translocation and ligand-independent transcription of PPARγ target genes. In contrast, Cav1 overexpression sequestered PPARγ in the cytosol through interaction of the Cav1 scaffolding domain (CSD) with a conserved hydrophobic motif in helix 7 of PPARγ's ligand-binding domain. Cav1 cooperated with the endogenous Ras/MAPK inhibitor docking protein 1 (Dok1) to promote the ligand-dependent transcriptional activity of PPARγ and to inhibit cell proliferation. Ligand-activated PPARγ also reduced tumor growth and upregulated the Ras/MAPK inhibitors Cav1 and Dok1 in a murine model of GC. These results suggest a novel mechanism of PPARγ regulation by which Ras/MAPK inhibitors act as scaffold proteins that sequester and sensitize PPARγ to ligands, limiting proliferation of gastric epithelial cells.