Schwannomas are peripheral nerve tumors that typically have mutations in the NF2 tumor suppressor gene. We compared cultured schwannoma cells with Schwann cells from normal human peripheral nerves (NHSC). Both cell types expressed specific antigenic markers, interacted with neurons, and proliferated in response to glial growth factor, confirming their identity as Schwann cells. Schwannoma cells frequently had elevated basal proliferation compared to NHSC. Schwannoma cells also showed spread areas 5-7-fold greater than NHSC, aberrant membrane ruffling and numerous, frequently disorganized stress fibers. Dominant negative Rac inhibited schwannoma cell ruffling but had no apparent effect on NHSC. Schwannoma cell stress fibers were inhibited by C3 transferase, tyrphostin A25, or dominant negative RhoA. These data suggest that the Rho and Rac pathways are abnormally activated in schwannoma cells. Levels of ezrin and moesin, proteins related to the NF2 gene product, merlin, were unchanged in schwannoma cells compared to NHSC. Our findings demonstrate for the first time that cell proliferation and actin organization are aberrant in schwannoma cells. Because NF2 is mutant in most or all human schwannomas, we postulate that loss of NF2 contributes to the cell growth and cytoskeletal dysfunction reported here.