The Rho family GTPases, Rac1 and Rac2, regulate a variety of cellular functions including cytoskeletal reorganization, the generation of reactive oxygen species, G1 cell cycle progression and, in concert with Ras, oncogenic transformation. Among the many putative protein targets identified for Rac (and/or Cdc42), the Ser/Thr kinase p21-activated kinase (PAK) is a prime candidate for mediating some of Rac's cellular effects. This report shows that Rac1 binds to and stimulates the kinase activity of PAK1 approximately 2- and 4-5-fold, respectively, better than Rac2. Mutational analysis was employed to determine the structural elements on Rac and PAK that are important for optimal binding and activation. The most notable difference between the highly homologous Rac isomers is the composition of their C-terminal polybasic domains. Mutation of these six basic residues in Rac1 to neutral amino acids dramatically decreased the ability of Rac1 to bind PAK1 and almost completely abolished its ability to stimulate PAK activity. Moreover, replacing the highly charged polybasic domain of Rac1 with the less charged domain of Rac2 (and vice versa) completely reversed the PAK binding/activation properties of the two Rac isomers. Thus, polybasic domain differences account for the disparate abilities of Rac1 and Rac2 to activate PAK. PAK proteins also contain a basic region, consisting of three contiguous lysine residues (Lys66-Lys67-Lys68), which lies outside of the previously identified Cdc42/Rac-binding domain. Mutation of these Lys residues to neutral residues decreased PAK binding to activated Rac1 and Rac2 (but not Cdc42) and greatly reduced PAK1 activation by Rac1, Rac2, and Cdc42 proteins in vivo. In contrast, mutation of lysines 66-68 to basic Arg residues did not decrease (and in some cases enhanced) the ability of Rac1, Rac2, and Cdc42 to bind and activate PAK1. Our studies suggest that the polybasic domain of Rac is a novel effector domain that may allow the two Rac isomers to activate different effector proteins. In addition, our results indicate that a basic region in PAK is required for PAK activation and that binding of Rac/Cdc42 to PAK is not sufficient for kinase activation.