The biological activities of Rho family GTPases are controlled by their guanine nucleotide binding states in cells. Here we have investigated the role of Mg2+ cofactor in the guanine nucleotide binding and hydrolysis processes of the Rho family members, Cdc42, Rad, and RhoA. Differing from Ras and Rab proteins, which require Mg2+ for GDP and GTP binding, the Rho GTPases bind the nucleotides in the presence or absence of Mg2+ similarly, with dissociation constants in the submicromolar concentration. The presence of Mg2+, however, resulted in a marked decrease in the intrinsic dissociation rates of the nucleotides. The catalytic activity of the guanine nucleotide exchange factors (GEFs) appeared to be negatively regulated by free Mg2+, and GEF binding to Rho GTPase resulted in a 10-fold decrease in affinity for Mg2+, suggesting that one role of GEF is to displace bound Mg2+ from the Rho proteins. The GDP dissociation rates of the GTPases could be further stimulated by GEF upon removal of bound Mg2+, indicating that the GEF-catalyzed nucleotide exchange involves a Mg2+-independent as well as a Mg2+-dependent mechanism. Although Mg2+ is not absolutely required for GTP hydrolysis by the Rho GTPases, the divalent ion apparently participates in the GTPase reaction, since the intrinsic GTP hydrolysis rates were enhanced 4-10-fold upon binding to Mg2+, and k(cat) values of the Rho GTPase-activating protein (RhoGAP)-catalyzed reactions were significantly increased when Mg2+ was present. Furthermore, the p50RhoGAP specificity for Cdc42 was lost in the absence of Mg2+ cofactor. These studies directly demonstrate a role of Mg2+ in regulating the kinetics of nucleotide binding and hydrolysis and in the GEF- and GAP-catalyzed reactions of Rho family GTPases, The results suggest that GEF facilitates nucleotide exchange by destabilizing both bound nucleotide and Mg2+, whereas RhoGAP utilizes the Mg2+ cofactor to achieve high catalytic efficiency and specificity.