The small G-protein Ras is a tightly controlled regulator of cell fate. Prolonged or persistent arrest in the activated GTP-loaded state by mutation of Ras as in lung cancer or in a Ras-GTPase-activating protein as in neurofibromatosis type 1 promotes tumorigenesis. We now show that the tumor-suppressor protein merlin (mutated in neurofibromatosis type 2) also controls Ras activity. Systematic analysis of growth factor signaling located the step of merlin interference to the activation of Ras and Rac. Merlin independently uncouples both Ras and Rac from growth factor signals. In the case of Ras, merlin acts downstream of the receptor tyrosine kinase-growth factor receptor binding protein 2 (Grb2)-SOS complex. However, merlin does not bind either SOS or Ras, but it counteracts the ERM (ezrin, radixin, moesin)-dependent activation of Ras, which correlates with the formation of a complex comprising ERM proteins, Grb2, SOS, Ras, and filamentous actin. Because efficient signaling from Ras requires Rac-p21-activated kinase-dependent phosphorylations of Raf and mitogen-activated protein/extracellular signal-regulated kinase kinase, merlin can also inhibit signal transfer from dominantly active Ras mutants. We propose that the interference of merlin with Ras- and Rac-dependent signal transfer represents part of the tumor-suppressive action of merlin.