Both the Rho family of low-molecular-weight GTP-binding proteins and protein kinases C (PKCs) mediate responses to a variety of extracellular and intracellular signals. They share many downstream targets, including remodeling of the actin cytoskeleton, activation of p70(S6) kinase and c-jun N-terminal kinase (JNK), and regulation of transcription and cell proliferation. We therefore investigated whether Rho family GTP-binding proteins bind to PKCs. We found that Cdc42 associates with atypical PKCs (aPKCs) PKCzeta and -lambda in a GTP-dependent manner. The regulatory domain of the aPKCs mediates the interaction. Expression of activated Cdc42 results in the translocation of PKClambda from the nucleus into the cytosol, and Cdc42 and PKClambda colocalize at the plasma membrane and in the cytoplasm. Expression of activated Cdc42 leads to a loss of stress fibers, as does overexpression of either the wild type or an activated form of PKClambda. Kinase-dead PKClambda and -zeta constructs acted as dominant negatives and restored stress fibers in cells expressing the activated V12 Cdc42 mutant, indicating that Cdc42-dependent loss of stress fibers requires aPKCs. Kinase-dead PKClambda and -zeta and dominant-negative N17 Cdc42 also blocked Ras-induced loss of stress fibers, suggesting that this pathway may also be important for Ras-dependent cytoskeletal changes. N17 Rac did not block Ras-induced loss of stress fibers, nor did kinase-dead PKClambda block V12 Rac-stimulated loss of stress fibers. These results indicate that Cdc42 and Rac use different pathways to regulate stress fibers.