The role of prenylation in the interaction of Rho-family small GTPases with their GTPase activating proteins (GAPs) was investigated. Prenylated and nonprenylated small GTPases were expressed in Sf9 insect cells and Escherichia coli, respectively. Nucleotide binding to and hydrolysis by prenylated and nonprenylated proteins were identical, but three major differences were observed in their reactions with GAPs. (1) Membrane-associated GAPs accelerate GTP hydrolysis only on prenylated Rac1 and RhoA, but they are inactive on the nonprenylated form of these proteins. The difference is independent of the presence of detergents. In contrast to Rac1 and RhoA, nonprenylated Cdc42 is able to interact with membrane-localized GAPs. (2) Full-length p50RhoGAP and p190RhoGAP react less intensely with nonprenylated Rac1 than with the prenylated protein, whereas no difference was observed in the reaction of isolated GAP domains of either p50RhoGAP or Bcr with the different types of Rac1. (3) Fluoride exerts a significant inhibitory effect only on the interaction of prenylated Rac1 with the isolated GAP domains of p50RhoGAP or Bcr. The effect of fluoride is not influenced by addition or chelation of Al(3+). This is the first detailed study demonstrating that prenylation of the small GTPase is an important factor in determining its reaction with GAPs. It is suggested that both intramolecular interactions and membrane targeting of GAP proteins represent potential mechanisms regulating Rac signaling.