Small GTPases control key cellular events, including formation of cell-cell junctions and gene expression, and are regulated by activating and inhibiting factors. Here, we characterize the junctional protein paracingulin as a novel regulator of the activity of two small GTPases, Rac1 and RhoA, through the functional interaction with their respective activators, Tiam1 and GEF-H1. In confluent epithelial monolayers, paracingulin depletion leads to increased RhoA activity and increased expression of mRNA for the tight junction protein claudin-2. During tight junction assembly by the calcium-switch, Rac1 shows two transient peaks of activity, at earlier (10-20 min) and later (3-8 h) time points. Paracingulin depletion reduces such peaks of Rac1 activation in a Tiam1-dependent manner, resulting in a delay in junction formation. Paracingulin physically interacts with GEF-H1 and Tiam1 in vivo and in vitro, and it is required for their efficient recruitment to junctions, based on immunofluorescence and biochemical experiments. Our results provide the first description of a junctional protein that interacts with GEFs for both Rac1 and RhoA, and identify a novel molecular mechanism whereby Rac1 is activated during junction formation.