The low molecular weight GTP binding protein Rac is essential to the activation of the NADPH oxidase complex, involved in pathogen killing during phagocytosis. In resting cells, Rac exists as a heterodimeric complex with Rho GDP dissociation inhibitor (Rho-GDI). Two types of interactions exist between Rac and Rho-GDI: a protein-lipid interaction, implicating the polyisoprene of the GTPase, as well as protein-protein interactions. Using the two-hybrid system, we show that nonprenylated Rac1 interacts very weakly with Rho-GDI, pointing to the predominant role of protein-isoprene interaction in complex formation. In the absence of this strong interaction, we demonstrate that three sites of protein-protein interaction, Arg66(Rac)-Leu67(Rac), His103(Rac), and the C-terminal polybasic region Arg183(Rac)-Lys188(Rac), are involved and cooperate in complex formation. When Rac1 mutants are prenylated by expression in insect cells, they all interact with Rho-GDI. Rho-GDI is able to exert an inhibitory effect on the GDP/GTP exchange reaction except in the complex in which Rac1 has a deletion of the polybasic region (Arg183(Rac)-Lys188(Rac)). This complex is, most likely, held together through protein-lipid interaction only. Although able to function as GTPases, the mutants of Rac1 that failed to interact with Rho-GDI also failed to activate the NADPH oxidase in a cell-free assay after loading with GTP. Mutant Leu119(Rac)Gln could both interact with Rho-GDI and activate the NADPH oxidase. The Rac1/Rho-GDI and Rac1(Leu119Gln)/Rho-GDI complexes, in which the GTPases were bound to GDP, were found to activate the oxidase efficiently. These data suggest that Rho-GDI stabilizes Rac in an active conformation, even in the GDP-bound state, and presents it to its effector, the p67phox component of the NADPH oxidase.