Proteins of the Rho family regulate cytoskeletal rearrangements in response to receptor stimulation and are involved in the establishment and maintenance of epithelial cell morphology. We recently showed that Rac is able to downregulate Rho activity and that the reciprocal balance between Rac and Rho activity is a major determinant of cellular morphology and motility in NIH3T3 fibroblasts. Using biochemical pull-down assays, we analyzed the effect of transient and sustained oncogenic Ras signaling on the activation state of Rac and Rho in epithelial MDCK cells. In contrast to the activation of Rac by growth factor-induced Ras signaling, we found that sustained signaling by oncogenic RasV12 permanently downregulates Rac activity, which leads to upregulation of Rho activity and epithelial-mesenchymal transition. Oncogenic Ras decreases Rac activity through sustained Raf/MAP kinase signaling, which causes transcriptional downregulation of Tiam1, an activator of Rac in epithelial cells. Reconstitution of Rac activity by expression of Tiam1 or RacV12 leads to downregulation of Rho activity and restores an epithelial phenotype in mesenchymal RasV12- or RafCAAX-transformed cells. The present data reveal a novel mechanism by which oncogenic Ras is able to interfere with the balance between Rac and Rho activity to achieve morphological transformation of epithelial cells.