The small GTP-binding Rho proteins control a variety of biological activities, including organization of the actin cytoskeleton, regulation of gene expression and cellular transformation. In contrast, Ras proteins do not induce actin stress fibers, but potently transform cells which exhibit a morphology clearly distinct from that caused by activated forms of Rho. To investigate whether nuclear signaling and oncogenic potential of Rho are a consequence of its profound effect on cytoskeletal organization, we replaced each amino acid in the Rho effector loop with those of Ras, or replaced conserved residues with others known to result in differential signaling capability when introduced into Ras and Rac1. These Rho mutants did not gain the ability to induce the MAPK, JNK or p38 pathways but, surprisingly, all Rho effector loop mutants still continued to induce actin stress fiber formation. However, three of these Rho mutants, with substitutions of leucine-39, glutamic acid-39, or cysteine-42, lost the ability to stimulate gene transcription via the serum response factor (SRF) and failed to induce neoplastic transformation. Thus, these results indicate that cytoskeletal changes are not sufficient to induce the transformed phenotype, and that Rho-effector molecules regulating the actin cytostructure are distinct from those signaling to the nucleus and subverting normal growth control.