Previously published reports support the concept that, besides promoting homotypic intercellular adhesion, cadherins may transfer intracellular signals. However, the signaling pathways triggered by cadherin clustering and their biological significance are still poorly understood. We report herein that transfection of VE-cadherin (VEC) cDNA in VEC null endothelial cells induces actin rearrangement and increases the number of vinculin positive adhesion plaques. VEC expression augments the level of active Rac but decreases active Rho. Microinjection of a dominant negative Rac mutant altered stress fiber organization, whereas inhibition of Rho was ineffective. VEC expression increased protein and mRNA levels of the Rac-specific guanosine exchange factor Tiam-1 and induced its localization at intercellular junctions. In addition, in the presence of VEC, the amounts of Tiam, Rac, and the Rac effector PAK as well as the level of PAK phosphorylation were found increased in the membrane/cytoskeletal fraction. These observations are consistent with a role of VEC in localizing Rac and its signaling partners in the same membrane compartment, facilitating their reciprocal interaction. Through this mechanism VEC may influence the constitutive organization of the actin cytoskeleton.