Maintenance of stable E-cadherin-dependent adhesion is essential for epithelial function. The small GTPase Rac is activated by initial cadherin clustering, but the precise mechanisms underlying Rac-dependent junction stabilization are not well understood. Ajuba, a LIM domain protein, colocalizes with cadherins, yet Ajuba function at junctions is unknown. We show that, in Ajuba-depleted cells, Rac activation and actin accumulation at cadherin receptors was impaired, and junctions did not sustain mechanical stress. The Rac effector PAK1 was also transiently activated upon cell-cell adhesion and directly phosphorylated Ajuba (Thr172). Interestingly, similar to Ajuba depletion, blocking PAK1 activation perturbed junction maintenance and actin recruitment. Expression of phosphomimetic Ajuba rescued the effects of PAK1 inhibition. Ajuba bound directly to Rac·GDP or Rac·GTP, but phosphorylated Ajuba interacted preferentially with active Rac. Rather than facilitating Rac recruitment to junctions, Ajuba modulated Rac dynamics at contacts depending on its phosphorylation status. Thus, a Rac-PAK1-Ajuba feedback loop integrates spatiotemporal signaling with actin remodeling at cell-cell contacts and stabilizes preassembled cadherin complexes.