Wnt signaling via the Frizzled (Fz) receptor controls cell polarity and movement during development, but the molecular nature of Wnt/Fz polarity signal transduction remains poorly defined. Here we report that in human cells and during Xenopus embryogenesis, Wnt/Fz signaling activates the small GTPase Rho, a key regulator of cytoskeleton architecture. Wnt/Fz activation of Rho requires the cytoplasmic protein Dishevelled (Dvl) and a novel Formin homology protein Daam1. Daam1 binds to both Dvl and Rho, and mediates Wnt-induced Dvl-Rho complex formation. Inhibition or depletion of Daam1 prevents Wnt/Fz activation of Rho and of Xenopus gastrulation, but not of beta-catenin signaling. Our study illustrates a molecular pathway from Wnt/Fz signaling to Rho activation in cell polarity signal transduction.