The Nf2 tumor suppressor gene codes for merlin, a protein whose function has been elusive. We describe a novel interaction between merlin and p21-activated kinase 1 (Pak1), which is dynamic and facilitated upon increased cellular confluence. Merlin inhibits the activation of Pak1, as the loss of merlin expression results in the inappropriate activation of Pak1 under conditions associated with low basal activity. Conversely, the overexpression of merlin in cells that display a high basal activity of Pak1 resulted in the inhibition of Pak1 activation. This inhibitory function of merlin is mediated through its binding to the Pak1 PBD and by inhibiting Pak1 recruitment to focal adhesions. This link provides a possible mechanism for the effect of loss of merlin expression in tumorigenesis.