Members of the Rho subfamily of GTP-binding proteins are implicated in the regulation of phospholipase D (PLD). In the present study, we demonstrate a physical association between a Rho family member, Cdc42, and PLD1. Binding of Cdc42 to PLD1 and subsequent activation are GTP-dependent. Although binding of Cdc42 to PLD1 does not require geranylgeranylation, activation of PLD1 is dependent on this lipid modification of Cdc42. Specific point mutations in the switch I region of Cdc42 abolish binding to and, therefore, activation of PLD1 by Cdc42. Deletion of the Rho insert region, which consists of residues 120-139, from Cdc42 does not interfere with binding to PLD1 but inhibits Cdc42 stimulated PLD1 activity. Interestingly, deletion of the insert region from Cdc42 also inhibits activation of PLD1 by Arf and protein kinase C. With the lack of specific inhibitors of PLD activity, the insert deletion mutant of Cdc42 (designated (DeltaL8)Cdc42) is a novel reagent for in vitro studies of PLD1 regulation, as well as for in vivo studies of Cdc42-mediated signaling pathways leading to PLD1 activation. Because the insert region is required for the transforming activity of Cdc42, regulation of PLD1 by this region on Cdc42 is of major interest.