In Saccharomyces cerevisiae, adenylate cyclase activity is controlled by Ras1p and Ras2p. Activation of the Ras proteins is in turn controlled by the GTPase-activating proteins (GAPs), Ira1p and Ira2p, and the guanine nucleotide exchange factor (GNEF), Cdc25p. We have characterized Cdc25p enzymologically in order to gain information about the mechanism of Cdc25p-mediated guanine nucleotide exchange and to appreciate how the activity of a GNEF is integrated as a part of a basic molecular switch module consisting of Ras, GNEF, and GAP. Using Ras2p and a catalytic fragment of Cdc25p, both expressed in and purified from Escherichia coli, we determined that Cdc25p has a Km for Ras2p-GDP of 160 nM and a maximal rate of 0.20 s-1. The Km of Cdc25p for Ras2p complexed to GTP is 3-fold greater than that for Ras2p complexed to GDP. The Km of free GDP is about 2-fold higher than the Km of free GTP. This suggests that Cdc25p activates Ras2p primarily by equilibrating Ras2p with the pool of free guanine nucleotides in the cell rather than by driving Ras2p inexorably into the activated state. This renders Ras activation potentially subject to energy charge fluctuations in the cell. The free guanine nucleotide affects kcat, indicating that the rate-limiting step is nucleotide association. Finally, we demonstrated that dominant negative alleles of Ras2p are potent competitive inhibitors of Cdc25p. These data, in conjunction with the kinetic data, are consistent with the hypothesis that Cdc25p catalyzes guanine nucleotide exchange by stabilizing a nucleotide-free intermediate of Ras.