A balloon dilatation catheter having a balloon at its distal end includes a distal segment having a collapsible outer diameter. The distal segment includes an inner shaft and a generally coaxial outer surrounding sleeve formed from a very flexible, thin wall, high-strength polymeric material. The balloon is formed integrally with the sleeve and is collapsible about the shaft together with the sleeve. The distal segment of the catheter exhibits a high degree of trackability over a guidewire through tortuous blood vessels. When in its collapsed configuration, the distal segment of the catheter defines a reduced profile which is less obstructive to blood flow through the blood vessel containing the catheter distal segment, such as a coronary artery. In a modified embodiment of the invention, the flexible thin wall sleeve extends over a greater length of the catheter and may extend to the full length of the catheter. In the modified embodiment, when the sleeve is collapsed about the inner shaft a reduced profile is defined along the length of the catheter. When contained within a guide catheter, the dilatation catheter provides for an enlarged cross-sectional flow area within the guide catheter, thus enhancing proximal dye injections and pressure measurements or, alternately, enabling the use of a smaller diameter guide catheter.