Neutrophils contain a soluble guanine-nucleotide-binding protein, made up of two components with molecular masses of 23 and 26 kDa, that mediates stimulation of phospholipase C-beta(2) (PLC beta(2)). We have identified the two components of the stimulatory heterodimer by amino acid sequencing as a Rho GTPase and the Rho guanine nucleotide dissociation inhibitor LyGDI, Using recombinant Rho GTPases and LyGDI, we demonstrate that PLC beta(2) is stimulated by guanosine 5'-O-(3-thiotriphosphate) (GTP[S])-activated Cdc42Hs x LyGDI, but not by RhoA x LyGDI. Stimulation of PLC beta(2), which was also observed for GTP[S]-activated recombinant Rad, was independent of LyGDI, but required C-terminal processing of Cdc42Hs/Rac1, Cdc42Hs/Rac1 also stimulated PLC beta(2) in a system made up of purified recombinant proteins, suggesting that this function is mediated by direct protein-protein interaction, The Cdc42Hs mutants F37A and Y40C failed to stimulate PLC beta(2), indicating that the Cdc42Hs effector site is involved in this interaction. The results identify PLC beta(2) as a novel effector of the Rho GTPases Cdc42Hs and Rad, and as the first mammalian effector directly regulated by both heterotrimeric and low-molecular-mass GTP-binding proteins.