The abilities of the M(3) muscarinic acetylcholine receptor (mAChR) and Rac1 to regulate similar cellular responses, including cadherin-mediated adhesion, prompted us to investigate Rac1 regulation by M(3) mAChR. We characterized changes in Rac1 induced by stimulating transfected M(3) mAChR in Chinese hamster ovary cells stably expressing hemagglutinin (HA)-tagged wild-type or mutant Rac1. mAChR activation converts endogenous Rac1 to the GTP-bound form in cells expressing HA-Rac1 but not in cells expressing dominant negative HA-Rac1(Asn-17) or constitutively active HA-Rac1(Val-12). The competitive binding of endogenous IQGAP1 by HA-Rac1(Val-12) may diminish the mAChR-mediated activation of endogenous Rac1. HA-Rac1 and HA-Rac1(Val-12), but not HA-Rac1(Asn-17), accumulate with IQGAP1 at cell junctions during mAChR-induced cell-cell compaction. Co-localization studies suggest that Rac1 can accumulate at junctions without IQGAP1, but IQGAP1 cannot accumulate at junctions without Rac1. mAChR activation also induces GTP-independent changes in Rac1 because mAChR activation redistributes HA-Rac1(Asn-17), which does not bind GTP. Actin associates with complexes containing HA-Rac1 or HA-Rac1(Val-12) after prolonged mAChR activation. We also demonstrate that Rac1 participates in mAChR-induced cell-cell compaction and c-Jun phosphorylation. These results indicate that M(3) mAChR activation converts Rac1 to the GTP-bound form, alters interactions between Rac1, IQGAP1, and actin, and causes the junctional accumulation of Rac1 and IQGAP1.