Using biochemical assays to determine the activation state of Rho-like GTPases, we show that the guanine nucleotide exchange factor Tiam1 functions as a specific activator of Rac but not Cdc42 or Rho in NIH3T3 fibroblasts. Activation of Rac by Tiam1 induces an epithelial-like morphology with functional cadherin-based adhesions and inhibits migration of fibroblasts. This epithelial phenotype is characterized by Rac-mediated effects on Rho activity. Transient PDGF-induced as well as sustained Rac activation by Tiam1 or V12Rac downregulate Rho activity. We found that Cdc42 also downregulates Rho activity. Neither V14Rho or N19Rho affects Rac activity, suggesting unidirectional signaling from Rac towards Rho. Downregulation of Rho activity occurs independently of Rac- induced cytoskeletal changes and cell spreading. Moreover, Rac effector mutants that are defective in mediating cytoskeleton changes or Jun kinase activation both downregulate Rho activity, suggesting that neither of these Rac signaling pathways are involved in the regulation of Rho. Restoration of Rho activity in Tiam1-expressing cells by expression of V14Rho results in reversion of the epithelioid phenotype towards a migratory, fibroblastoid morphology. We conclude that Rac signaling is able to antagonize Rho activity directly at the GTPase level, and that the reciprocal balance between Rac and Rho activity determines cellular morphology and migratory behavior in NIH3T3 fibroblasts.