Dbl family members are guanine nucleotide exchange factors specific for Rho guanosine triphosphatases (GTPases) and invariably possess tandem Dbl (DH) and pleckstrin homology (PH) domains. Dbs, a Dbl family member specific for Cdc42 and RhoA, exhibits transforming activity when overexpressed in NIH 3T3 mouse fibroblasts. In this study, the PH domain of Dbs was mutated to impair selectively either guanine nucleotide exchange or phosphoinositide binding in vitro and resulting physiological alterations were assessed. As anticipated, substitution of residues within the PH domain of Dbs integral to the interface with GTPases reduced nucleotide exchange and eliminated the ability of Dbs to transform NIH 3T3 cells. More interestingly, substitutions within the PH domain that prevent interaction with phosphoinositides yet do not alter in vitro activation of GTPases also do not transform NIH 3T3 cell and fail to activate RhoA in vivo despite proper subcellular localization. Therefore, the PH domain of Dbs serves multiple roles in the activation of GTPases and cannot be viewed as a simple membrane-anchoring device. In particular, the data suggest that binding of phosphoinositides to the PH domain within the context of membrane surfaces may direct orientations or conformations of the linked DH and PH domains to regulate GTPases activation.