Syndecan-4 is a transmembrane heparan sulfate proteoglycan that co-operates with integrins during cell-matrix interactions for the assembly of focal adhesions and actin stress fibers and in the phosphorylation of focal adhesion kinase (FAK) on Tyr397. These cellular events are regulated by the small GTPase Rho, and in the absence of syndecan-4 ligation, cellular levels of GTP-bound Rho are decreased implicating syndecan-4 in the regulation of the small GTPases. In the present study we report that, compared with wild type cells, fibronectin-adherent syndecan-4-null fibroblasts showed enhanced lamellipodia and increased Rac1 activity that could be down-regulated by re-expression of syndecan-4 in the mutant cells. Consistent with the role for Rac1 in activating p38 and JNK signaling, syndecan-4-null cells display higher levels of active p38 MAPK and JNK that were abolished by the expression of a dominant-negative RacN17 mutant. Since p38 and JNK regulate gene expression by phosphorylating and activating transcription factors, we compared both the phosphorylation state and the transcriptional activity of the ATF-2 transcription factor, as a direct p38 and JNK target in syndecan-4-null and wild type cells. In the absence of syndecan-4, both ATF-2 phosphorylation and transcriptional activity were significantly more elevated compared with wild type cells, and both activities were decreased either by the re-expression of syndecan-4 or by the expression of RacN17. Our results reveal a novel function for syndecan-4 in modulating nuclear transcriptional activity and indicate an underlying mechanism that acts at the level of Rac1-p38/JNK signaling.