Selective activation of Rac GTPase signaling pathways requires the specific release of Rac from RhoGDI complexes. We identified a RhoGDI kinase from bovine brain as p21-activated kinase (Pak). Pak1 binds and phosphorylates RhoGDI both in vitro and in vivo at Ser101 and Ser174. This resulted in dissociation of Rac1-RhoGDI, but not RhoA-RhoGDI, complexes, as determined by in vitro assays of complexation and in vivo by coimmunoprecipitation analysis. We observed that Cdc42-induced Rac1 activation is inhibited by expression of Pak1 autoinhibitory domain. The dissociation of Rac1 from RhoGDI and its subsequent activation stimulated by PDGF or EGF is also attenuated by Pak1 autoinhibitory domain, and this is dependent on the ability of RhoGDI to be phosphorylated at Ser101/174. These results support a role for Pak1-mediated RhoGDI phosphorylation as a mechanism for Cdc42-mediated Rac activation, and suggest the possibility of Rac-induced positive feed-forward regulation of Rac activity.