The oncogenic protein Vav harbours a complex array of structural motifs, including leucine-rich, Dbl-homology, pleckstrin-homology, zinc-finger, SH2 and SH3 domains. Upon stimulation by antigens or mitogens, Vav becomes phosphorylated on key tyrosine residues and associates with other signalling proteins, including the mitogen receptors Zap-70 (ref. 6), Vap-1 (ref. 5) and Slp-76 (ref. 7). Disruption of the vav locus by homologous recombination causes severe defects in signalling by primary antigen receptors, leading to abnormal lymphocyte proliferation and lymphopenia. Despite the importance of Vav cell signalling, the function of this protein remains unknown. Here we show that tyrosine-phosphorylated Vav, but not the non-phosphorylated protein, catalyses GDP/GTP exchange on Rac-1, a protein implicated in cell proliferation and cytoskeletal organization, causing this GTPase to switch from its inactive to its active state. Transfection experiments also show that phosphorylation of Vav on tyrosine residues leads to nucleotide exchange on Rac-1 in vivo and stimulates c-Jun kinase, a downstream element in the signalling pathway involving this GTPase. Our results have identified a function for Vav and define a mechanism in which engaged membrane receptors activate its signalling pathway.