Neutrophils contain a soluble guanine-nucleotidebinding protein, made up of two components with molecular masses of 23 and 26 kDa, that mediates stimulation of phospholipase C-beta2 (PLCbeta2). 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 PLCbeta2 is stimulated by guanosine 5'-O-(3-thiotriphosphate) (GTP[S])-activated Cdc42HsxLyGDI, but not by RhoAxLyGDI. Stimulation of PLCbeta2, which was also observed for GTP[S]-activated recombinant Rac1, was independent of LyGDI, but required C-terminal processing of Cdc42Hs/Rac1. Cdc42Hs/Rac1 also stimulated PLCbeta2 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 PLCbeta2, indicating that the Cdc42Hs effector site is involved in this interaction. The results identify PLCbeta2 as a novel effector of the Rho GTPases Cdc42Hs and Rac1, and as the first mammalian effector directly regulated by both heterotrimeric and low-molecular-mass GTP-binding proteins.