Mechanical tension governs epithelial morphogenesis and homeostasis, but its regulation remains poorly understood. Tension is commonly contractile, arising when the actomyosin cortices of cells are mechanically coupled together by cadherin adhesion. Here we report that caveolae control levels of epithelial tension and show that this is necessary for oncogene-transfected cells to be eliminated by apical extrusion. Depletion of caveolin-1 (CAV1) in the surrounding epithelium, but not in the oncogene-expressing cells, blocked extrusion leading to the retention and proliferation of transformed cells within the monolayer. Tensile stress was aberrantly elevated in CAV1-depleted monolayers due to elevated levels of phosphoinositide-4,5-bisphosphate (PtdIns(4,5)P 2 ) causing increased recruitment of the formin, FMNL2. Oncogenic extrusion was restored to CAV1-deficient monolayers when tension was corrected by depleting FMNL2, blocking PtdIns(4,5)P 2 , or disabling the interaction between FMNL2 and PtdIns(4,5)P 2 . Thus, by controlling lipid signalling to the actin cytoskeleton, caveolae regulate mechanical tension for epithelial homeostasis.