In the vasculature, ATP-sensitive K⁺ (K_ATP) channels are critical regulators of arterial tone, forming a focal point for signalling by many vasoactive transmitters that alter smooth muscle contractility and so vascular resistance and blood flow. Opening of arterial K_ATP channels causes membrane hyperpolarization, a decrease in Ca²⁺ influx through voltage-dependent L-type Ca²⁺ channels, and vasorelaxation. Thus, vasodilators open K_ATP channels, while vasoconstrictors close them and, clinically, these channels form useful targets for drugs designed to treat angina pectoris and hypertension. However, while the biochemical basis of K_ATP channel modulation is well-studied, little is known about the structural or spatial organisation of the numerous signalling pathways that converge upon these channels. Here we will discuss evidence that arterial smooth muscle cells utilize specialized lipid microdomains as a means of segregating and organising the complex regulatory pathways that modulate K_ATP channel activity. Many endogenous vasodilators act at receptors coupled to the G protein Gs to elevate K_ATP channel activity via activation of cyclic AMP-dependent protein kinase (PKA). Indeed, even in the absence of vasodilators, PKA exerts a steady-state activation of K_ATP channels that arises from sustained cAMP production originating from basal adenylyl cyclase turnover (Sampson et al. 2004). Physiologically, this tonic K_ATP channel activation is likely to maintain a background level of channel activity that contributes a vasodilating drive to resting vascular tone. Recent evidence shows that the distance cAMP can diffuse from its site of production is severely limited by the activity of phosphodiesterases (Zaccolo & Pozzan, 2002), suggesting that downstream targets of cAMP must be reasonably close to adenylyl cyclase. The major target of cAMP, PKA, is anchored in close proximity to K_ATP channels through the action of an A-kinase anchoring protein (Hayabuchi et al. 2001), and we reasoned that K_ATP channels and their associated kinases are likely to be in the vicinity of adenylyl cyclase. In smooth muscle cells adenylyl cyclase resides primarily in small (50-100nm) cholesterol and sphingolipid-enriched invaginations of the surface membrane termed caveolae (Ostrom et al. 2002). These specialized lipid microdomains comprise approximately 20% of the smooth muscle cell’s total surface area and are thought to generate subcellular signalling compartments by aggregating interacting proteins. We therefore investigated whether K_ATP channels are compartmentalized with adenylyl cyclase in these lipid microdomains. Caveolar membrane fractions were isolated from rat aortic smooth muscle cell homogenates by ultracentrifugation on discontinuous sucrose gradients. Tissues were obtained from humanely killed adult male Wistar rats. Subsequent Western blot analysis showed that K_ATP channels localize with adenylyl cyclase, to cholesterol-rich membrane fractions containing caveolin, a structural protein found exclusively in caveolae. Additionally, an antibody against the K_ATP pore-forming subunit, Kir6.1 coimmunoprecipitated caveolin from arterial homogenates, suggesting that K_ATP channels and caveolin exist together in a complex within cells (Sampson et al. 2004). The integrity of the membrane compartments generated by caveolae seems important in maintaining normal K_ATP channel regulation since disruption of caveolae by the cholesterol-depleting agent, methyl-b-cyclodextrin significantly reduced the PKA-sensitive component of K_ATP channel current. These data indicate that tonic PKA-dependent channel activation relies on the spatial confinement of adenylyl cyclase and K_ATP channels. The compartmentation of adenylyl cyclase and K_ATP channels presumably represents just one component of the regulatory machinery surrounding these channels, and it seems likely that larger, more elaborate signalling complexes exist within these lipid domains. The subcellular distribution of the major receptors that couple to arterial K_ATP channels is largely unknown, but caveolae have already been implicated as integration sites for smooth muscle Ca²⁺ signalling due to their ability to aggregate proteins involved in Ca²⁺ regulation and excitation-contraction coupling. It also seems likely that each caveola will contain a different collection of receptors and signalling proteins, which may have important implications for understanding the structural basis of K_ATP channel regulation.