The small GTPase racE is essential for cytokinesis in Dictyostelium but its precise role in cell division is not known. To determine the molecular mechanism of racE function, we undertook a mutational analysis of racE. The exogenous expression of either wild-type racE or a constitutively active V20racE mutant effectively rescues the cytokinesis deficiency of racE null cells. In contrast, a constitutively inactive N25racE mutant fails to rescue the cytokinesis deficiency. Thus, cytokinesis requires only the activation of racE by GTP and not the inactivation of racE by hydrolysis of GTP. To determine the spatial distribution of racE, we created a fusion protein with GFP at the amino terminus of racE. Remarkably, GFP-racE fusion protein was fully competent to rescue the phenotype of racE null cells and, therefore, must reside in the same location as native racE. We found that GFP-racE localized to the plasma membrane of the cell throughout the entire cell cycle. Furthermore, constitutively active and inactive GFP-racE fusion proteins also localized to the plasma membrane. We mapped the domain required for plasma membrane localization to the carboxyl-terminal 40 amino acids of racE. This domain, however, is not sufficient to confer racE function onto a closely related GTPase. Taken together, these results suggest that racE functions at the cell cortex but it is not involved in determining the timing or placement of the contractile ring.