Rho GTPases and their downstream effectors regulate changes in the actin cytoskeleton that underlie cell motility and adhesion. They also participate, with RhoA, in the regulation of gene transcription by activating serum response factor (SRF)-mediated transcription from the serum response element (SRE). SRF-mediated transcription is also promoted by several proteins that regulate the polymerization or stability of actin. We have previously identified a family of PP2C phosphatases, POPXs, which can dephosphorylate the CDC42/RAC-activated kinase PAK and downregulate its enzymatic and actin cytoskeletal activity. We now report that POPX2 interacts with the formin protein mDia1 (DIAPH1). This interaction is enhanced when mDia1 is activated by RhoA. The binding of POPX2 to mDia1 or to an mDia-containing complex greatly decreases the ability of mDia1 to activate transcription from the SRE. We propose that the interaction between mDia1 and POPX2 (PPM1F) serves to regulate both the actin cytoskeleton and SRF-mediated transcription, and to link the CDC42/RAC1 pathways with those of RhoA.