Diaphanous related formins (DRFs) are part of the formin protein family that control morphogenesis, embryonic differentiation, cytokinesis, and cell polarity. DRFs organize the cytoskeleton in eukaryotic cells via the interaction with specific members of the Rho family of small GTPases including Rho, Rac, and Cdc42. This is best understood for Rho, which transmits signals to the actin cytoskeleton through the cooperation of its DRF effector mDia with ROCK (Rho-associated kinase). Here, we show that a constitutive active form of the Rac-interacting DRF FHOD1 (formin homology 2 domain containing 1) associates with F-actin in NIH3T3 cells, resulting in the formation of thick actin fibers. Cytoskeletal changes induced by FHOD1 correlated with the induction of serum response element transcription and were mediated by formin homology domains 1 and 2 of FHOD1. FHOD1-induced effects required the activity of the Rho-ROCK cascade that is targeted at a level downstream of Rho by the DRF. However, when the functional interaction of FHOD1 with individual GTPases was addressed, Rac but not Rho or Cdc42 bound to FHOD1 in cells and induced its recruitment to actin filaments and lamellipodia/membrane ruffles. Furthermore, activated FHOD1 interfered with lamellipodia formation. These results indicate that FHOD1 acts as an effector of Rac in actin rearrangements and transcriptional regulation and may provide a link for the Rac-dependent activation of the Rho cascade.