The AAA-ATPase VCP (also known as p97) cooperates with distinct cofactors to process ubiquitylated proteins in different cellular pathways. VCP missense mutations cause a systemic degenerative disease in humans, but the molecular pathogenesis is unclear. We used an unbiased mass spectrometry approach and identified a VCP complex with the UBXD1 cofactor, which binds to the plasma membrane protein caveolin-1 (CAV1) and whose formation is specifically disrupted by disease-associated mutations. We show that VCP-UBXD1 targets mono-ubiquitylated CAV1 in SDS-resistant high-molecular-weight complexes on endosomes, which are en route to degradation in endolysosomes. Expression of VCP mutant proteins, chemical inhibition of VCP, or siRNA-mediated depletion of UBXD1 leads to a block of CAV1 transport at the limiting membrane of enlarged endosomes in cultured cells. In patient muscle, muscle-specific caveolin-3 accumulates in sarcoplasmic pools and specifically delocalizes from the sarcolemma. These results extend the cellular functions of VCP to mediating sorting of ubiquitylated cargo in the endocytic pathway and indicate that impaired trafficking of caveolin may contribute to pathogenesis in individuals with VCP mutations.