Vascular stabilization, a process by which nascent vessels are invested with mural cells, is important in angiogenesis. Here we describe the molecular basis of vascular stabilization regulated by sphingosine 1-phosphate (S1P), a platelet-derived lipid mediator. S1P₁ receptor-dependent cell-surface trafficking and activation of the cell-cell adhesion molecule N-cadherin is essential for interactions between endothelial and mural cells. Endothelial cell S1P₁/G_i/Rac pathway induces microtubule polymerization, resulting in trafficking of N-cadherin to polarized plasma membrane domains. S1P treatment modulated the phosphorylation of N-cadherin as well as p120-catenin and induced the formation of cadherin/catenin/actin complexes containing novel regulatory and trafficking factors. The net result of endothelial cell S1P₁ receptor activation is the proper trafficking and strengthening of N-cadherin-dependent cell-cell adhesion with mural cells. Perturbation of N-cadherin expression with small interfering RNA profoundly attenuated vascular stabilization in vitro and in vivo. S1P-induced trafficking and activation of N-cadherin provides a novel mechanism for the stabilization of nascent blood vessels by mural cells and may be exploited to control angiogenesis and vascular diseases.