Abstract Background Retroviral Gag determines virus assembly at the plasma membrane and the formation of virus-like particles in intracellular multivesicular bodies. Thereby, retroviruses exploit by interaction with cellular partners the cellular machineries for vesicular transport in various ways. Results The retroviral Gag precursor protein drives assembly of murine leukaemia viruses (MLV) at the plasma membrane (PM) and the formation of virus like particles in multivesicular bodies (MVBs). In our study we show that caveolin-1 (Cav-1), a multifunctional membrane-associated protein, co-localizes with Gag in a punctate pattern at the PM of infected NIH 3T3 cells. We provide evidence that Cav-1 interacts with the matrix protein (MA) of the Gag precursor. This interaction is mediated by a Cav-1 binding domain (CBD) within the N-terminus of MA. Interestingly, the CBD motif identified within MA is highly conserved among most other γ-retroviruses. Furthermore, Cav-1 is incorporated into MLV released from NIH 3T3 cells. Overexpression of a GFP fusion protein containing the putative CBD of the retroviral MA resulted in a considerable decrease in production of infectious retrovirus. Moreover, expression of a dominant-negative Cav-1 mutant affected retroviral titres significantly. Conclusion This study demonstrates that Cav-1 interacts with MLV Gag, co-localizes with Gag at the PM and affects the production of infectious virus. The results strongly suggest a role for Cav-1 in the process of virus assembly.