IQGAP1, a target of Cdc42 and Rac1 small GTPases, directly interacts with beta-catenin and negatively regulates E-cadherin-mediated cell-cell adhesion by dissociating alpha-catenin from the cadherin-catenin complex in vivo (Kuroda, S., Fukata, M., Nakagawa, M., Fujii, K., Nakamura, T., Ookubo, T., Izawa, I., Nagase, T., Nomura, N., Tani, H., Shoji, I., Matsuura, Y., Yonehara, S., and Kaibuchi, K. (1998) Science 281, 832-835). Here we investigated how Cdc42 and Rac1 regulate the IQGAP1 function. IQGAP1 interacted with the amino-terminal region (amino acids 1-183) of beta-catenin, which contains the alpha-catenin-binding domain. IQGAP1 dissociated alpha-catenin from the beta-catenin-alpha-catenin complex in a dose-dependent manner in vitro. Guanosine 5'-(3-O-thio)triphosphate (GTPgammaS).glutathione S-transferase (GST)-Cdc42 and GTPgammaS. GST-Rac1 inhibited the binding of IQGAP1 to beta-catenin in a dose-dependent manner in vitro, whereas neither GDP.GST-Cdc42, GDP. GST-Rac1, nor GTPgammaS.GST-RhoA did. The coexpression of dominant active Cdc42 with IQGAP1 suppressed the dissociation of alpha-catenin from the cadherin-catenin complex induced by the overexpression of IQGAP1 in L cells expressing E-cadherin (EL cells). Consistent with this, the overexpression of either dominant negative Cdc42 or Rac1 resulted in the reduction of E-cadherin-mediated cell adhesive activity in EL cells. These results indicate that Cdc42 and Rac1 negatively regulate the IQGAP1 function by inhibiting the interaction of IQGAP1 with beta-catenin, leading to stabilization of the cadherin-catenin complex.