The ability of the Ras oncogene to transform normal cells has been well established. One downstream effector of Ras is the lipid hydrolyzing enzyme phospholipase D. Recent evidence has emerged indicating a role for phospholipase D in cell proliferation, membrane trafficking, and migration. To study the potential importance of phospholipase D in the oncogenic ability of Ras, we used Rat-2 fibroblasts with reduced phospholipase D1 activity (Rat-2V25). Here, we show that H-Ras transformation of Rat-2 fibroblasts requires normal phospholipase D1 activity. WT Rat-2 fibroblasts transfected with the H-RasV12 oncogene grew colonies in soft agar and tumors in nude mice. However, Rat-2V25 cells when transfected with the H-RasV12 oncogene did not form colonies in soft agar or produce tumors when xenografted onto nude mice. Interestingly, in the presence of phosphatidic acid, the product of phospholipase D, growth in soft agar and tumor formation was restored. We also observed a dramatic increase in the expression of phospholipase D1 in colorectal tumors when compared with adjacent normal mucosa. Our studies identify phospholipase D1 as a critical downstream mediator of H-Ras-induced tumor formation.