Phosphoinositide-3-OH kinase (PI(3)K), activated through growth factor stimulation, generates a lipid second messenger, phosphatidylinositol-3,4,5-trisphosphate (PtdIns(3,4,5)P3). PtdIns(3,4,5)P3 is instrumental in signalling pathways that trigger cell activation, cytoskeletal rearrangement, survival and other reactions. However, some targets of PtdIns(3,4,5)P3 are yet to be discovered. We demonstrate that SWAP-70, a unique signalling protein, specifically binds PtdIns(3,4,5)P3. On stimulation by growth factors, cytoplasmic SWAP-70, which is dependent on PI(3)K but independent of Ras, moved to cell membrane rearrangements known as ruffles. However, mutant SWAP-70 lacking the ability to bind PtdIns(3,4,5)P3 blocked membrane ruffling induced by epidermal growth factor or platelet-derived growth factor. SWAP-70 shows low homology with Rac-guanine nucleotide exchange factors (GEFs), and catalyses PtdIns(3,4,5)P3-dependent guanine nucleotide exchange to Rac. SWAP-70-deficient fibroblasts showed impaired membrane ruffling after stimulation with epidermal growth factor, and failed to activate Rac fully. We conclude that SWAP-70 is a new type of Rac-GEF which, independently of Ras, transduces signals from tyrosine kinase receptors to Rac.