Guanine nucleotide dissociation inhibitor (GDI) is an essential protein required for the recycling of Rab GTPases mediating the targeting and fusion of vesicles in the exocytic and endocytic pathways. Using site-directed mutagenesis of yeast GDI1, we demonstrate that amino acid residues required for Rab recognition in vitro are critical for function in vivo in Saccharomyces cerevisiae. Analysis of the effects of Rab-binding mutants on function in vivo reveals that only a small pool of recycling Rab protein is essential for growth, and that the rates of recycling of distinct Rabs are differentially sensitive to GDI. Furthermore, we find that membrane association of Gdi1p is Rab-independent. Mutant Gdi1 proteins unable to bind Rabs were able to associate with cellular membranes as efficiently as wild-type Gdi1p, yet caused a striking loss of the endogenous cytosolic Gdi1p-Rab pools leading to dominant inhibition of growth when expressed at levels of the normal, endogenous pool. These results demonstrate a potential role for a new recycling factor in the retrieval of Rab-GDP from membranes, and illustrate the importance of multiple effectors in regulating GDI function in Rab delivery and retrieval from membranes.