The Rho family members Cdc42, Rac, and Rho play a central role in the organization of the actin cytoskeleton and regulate transcription. Whereas Rac and Rho have been implicated in transformation by oncogenic Ras, the role of Cdc42 in this process remains unknown. In this study, we found that Rat1 fibroblasts expressing constitutively active V12-Cdc42 were anchorage independent and proliferated in nude mice but failed to show enhanced growth in low serum. Similar to V12-Rac1-expressing Rat1 fibroblasts, V12-Cdc42 lines displayed a high frequency of multinucleated cells. Interestingly, coexpression of dominant negative N17-Rac1 blocked the V12-Cdc42-induced multinucleated phenotype but not growth in soft agar, indicating that Cdc42 controls anchorage independence in a Rac-independent fashion. We also showed that dominant negative N17-Cdc42 inhibited Ras focus formation and anchorage-independent growth and caused reversion of the transformed morphology, indicating that Cdc42 is necessary for Ras transformation. N17-Cdc42 caused only partial inhibition of Ras-induced low-serum growth, however. In contrast, whereas N17-Rac1 also effectively inhibited Ras-induced anchorage independence, it did not revert the morphology of Ras-transformed cells. N17-Rac1 strongly inhibited low-serum growth of Ras-transformed cells, however. Together, these data provide a novel function for Cdc42 in cell proliferation and indicate that Cdc42 and Rac play distinct roles in growth control and Ras transformation.