The Rho family GTPases are pivotal for T cell signaling; however, the regulation of these proteins is not fully known. One well studied regulator of Rho GTPases is Vav1; a hematopoietic cell-specific guanine nucleotide exchange factor critical for signaling in T cells, including stimulation of the nuclear factor of activated T cells (NFAT). Surprisingly, Vav1 associates with Ly-GDI, a hematopoietic cell-specific guanine nucleotide dissociation inhibitor of Rac. Here, we studied the functional significance of the interaction between Vav1 and Ly-GDI in T cells. Upon organization of the immunological synapse, both Ly-GDI and Vav1 relocalize to T cell extensions in contact with the antigen-presenting cell. Ly-GDI is phosphorylated on tyrosine residues following T cell receptor stimulation, and it associates with the Src homology 2 region of an adapter protein, Shc. In addition, the interaction between Ly-GDI and Vav1 requires tyrosine phosphorylation. Overexpression of Ly-GDI alone is inhibitory to NFAT stimulation and calcium mobilization. However, when co-expressed with Vav1, Ly-GDI enhances Vav1 induction of NFAT activation, phospholipase C␥ phosphorylation, and calcium mobilization. Moreover, Ly-GDI does not alter the regulation of these phenomena when coexpressed with oncogenic Vav1. Since oncogenic Vav1 does not bind Ly-GDI, this suggests that the functional cooperativity of Ly-GDI and Vav1 is dependent upon their association. Thus, our data suggest that the interaction of Vav1 and Ly-GDI creates a fine tuning mechanism for the regulation of intracellular signaling pathways leading to NFAT stimulation.The Rho GTPase proteins participate in cellular processes such as cell cycle, movement and migration, metabolism, survival, proliferation, and differentiation (1-4). Rho GTPase proteins cycle between the GDP-bound inactive and GTP-bound active forms. Extracellular signals can affect Rho GTPase activity through at least three types of regulatory molecules: the GTPase-activating proteins that stimulate conversion from the GTP-bound form to the GDP-bound form; the GDP/GTP exchange factors (GEFs), 1 which facilitate the shift from the GDP-bound form to the GTP-bound form; and the GDP dissociation inhibitors (GDIs), which block GDP dissociation from Rho GTPases, thus maintaining the inactive state (4). Despite accumulating experimental evidence, many details of the regulation of GDP/GTP exchange remain to be elucidated.One of the well studied GEFs for Rho GTPases is Vav1, a hematopoietic cell-specific signal transducer protein (5, 6). Vav1 contains several characteristic structural motifs that enable its function as a signal transducer protein. In fact, Vav1 and the other ubiquitously expressed members of the Vav family of proteins (Vav2 and Vav3) are the only known Rho GEFs that have SH2 domains, suggesting that their GEF activity is regulated by tyrosine phosphorylation (7-10).One of the best studied roles of Vav1 is as a signal transducer in activated T cells. TCR stimulation with antigen or with cross-linking anti...