The small GTP-binding protein Rac1, a member of the Rho family of small GTPases, has been implicated in regulation of many cellular processes including adhesion, migration and cytokinesis. These functions have largely been attributed to its ability to reorganize cytoskeleton. While the function of Rac1 is relatively well known in vitro, its role in vivo has been poorly understood. It has previously been shown that in neural crest cells (NCCs) Rac1 is required in a stage-specific manner to acquire responsiveness to mitogenic EGF signals. Here we demonstrate that mouse embryos lacking Rac1 in neural crest cells (Rac1/Wnt1-Cre) showed abnormal craniofacial development including regional ectodermal detachment associated with mesenchymal acellularity culminating in cleft face at E12. Rac1/Wnt1-Cre mutants also displayed inappropriate remodelling of pharyngeal arch arteries and defective outflow tract septation resulting in the formation of a common arterial trunk ('persistent truncus arteriosus' or PTA). The mesenchyme around the aortic sac also developed acellular regions, and the distal aortic sac became grossly dysmorphic, forming a pair of bilateral, highly dilated arterial structures connecting to the dorsal aortas. Smooth muscle cells lacking Rac1 failed to differentiate appropriately, and subpopulations of post-migratory NCCs demonstrated aberrant cell death and attenuated proliferation. These novel data demonstrate that while Rac1 is not required for normal NCC migration in vivo, it plays a critical cell-autonomous role in post-migratory NCCs during craniofacial and cardiac development by regulating the integrity of the craniofacial and pharyngeal mesenchyme.