In polarized cells, signal transduction by cholera toxin (CT) requires apical endocytosis and retrograde transport into Golgi cisternae and perhaps ER (Lencer, W.I., C. Constable, S. Moe, M. Jobling, H.M. Webb, S. Ruston, J.L. Madara, T. Hirst, and R. Holmes. 1995. J. Cell Biol. 131:951–962). In this study, we tested whether CT's apical membrane receptor ganglioside GM1 acts specifically in toxin action. To do so, we used CT and the related Escherichia coli heat-labile type II enterotoxin LTIIb. CT and LTIIb distinguish between gangliosides GM1 and GD1a at the cell surface by virtue of their dissimilar receptor-binding B subunits. The enzymatically active A subunits, however, are homologous. While both toxins bound specifically to human intestinal T84 cells (K_d ≈ 5 nM), only CT elicited a cAMP-dependent Cl⁻ secretory response. LTIIb, however, was more potent than CT in eliciting a cAMP-dependent response from mouse Y1 adrenal cells (toxic dose 10 vs. 300 pg/well). In T84 cells, CT fractionated with caveolae-like detergent-insoluble membranes, but LTIIb did not. To investigate further the relationship between the specificity of ganglioside binding and partitioning into detergent-insoluble membranes and signal transduction, CT and LTIIb chimeric toxins were prepared. Analysis of these chimeric toxins confirmed that toxin-induced signal transduction depended critically on the specificity of ganglioside structure. The mechanism(s) by which ganglioside GM1 functions in signal transduction likely depends on coupling CT with caveolae or caveolae-related membrane domains.