Claviceps purpurea, the ergot fungus, is a highly specialized pathogen of grasses; its colonization of host ovarian tissue requires an extended period of strictly polarized, oriented growth towards the vascular tissue. To understand this process, we study the role of signalling factors affecting polarity and differentiation. We showed that the small GTPase Cdc42 is involved in polarity, sporulation and in planta growth in C. purpurea. Here we present evidence that the GTPase Rac has an even stronger and, in some aspects, inverse impact on growth and development: Deltarac mutants form coralline-like colonies, show hyper-branching, loss of polarity, sporulation and ability to penetrate. Functional analyses and yeast two-hybrid studies prove that the p21-activated kinase Cla4 is a major downstream partner of Rac. Phosphorylation assays of MAP kinases and expression studies of genes encoding reactive oxygen species (ROS)-scavenging and -generating enzymes indicate a function of Rac and Cla4 in fungal ROS homoeostasis which could contribute to their drastic impact on differentiation.