The formation of cell-cell adherens junctions is a cadherin-mediated process associated with reorganization of the actin cytoskeleton. Because Rho family GTPases regulate actin dynamics, we investigated whether cadherin-mediated adhesion regulates the activity of RhoA, Rac1, and Cdc42. Confluent epithelial cells were found to have elevated Rac1 and Cdc42 activity but decreased RhoA activity when compared with low density cultures. Using a calcium switch method to manipulate junction assembly, we found that induction of cell-cell junctions increased Rac1 activity, and this was inhibited by E-cadherin function-blocking antibodies. Using the same calcium switch procedure, we found little effect on RhoA activity during the first hour of junction assembly. However, over several hours, RhoA activity significantly decreased. To determine whether these effects are mediated directly through cadherins or indirectly through engagement of other surface proteins downstream from junction assembly, we used a model system in which cadherin engagement is induced without cell-cell contact. For these experiments, Chinese hamster ovary cells expressing C-cadherin were plated on the extracellular domain of C-cadherin immobilized on tissue culture plates. Whereas direct cadherin engagement did not stimulate Cdc42 activity, it strongly inhibited RhoA activity but increased Rac1 activity. Deletion of the C-cadherin cytoplasmic domain abolished these effects.