Small GTPases of the rab family control distinct steps of intracellular transport. The function of their GTPase activity is not completely understood. To investigate the role of the nucleotide state of rab5 in the early endocytic pathway, the effects of two mutants with opposing biochemical properties were tested. The Q79L mutant of rab5, analogous with the activating Q61L mutant of p21‐ras, was found to have a strongly decreased intrinsic GTPase activity and was, unlike wild‐type rab5, found mainly in the GTP‐bound form in vivo. Expression of this protein in BHK and HeLa cells led to a dramatic change in cell morphology, with the appearance of unusually large early endocytic structures, considerably larger than those formed upon overexpression of wild‐type rab5. An increased rate of transferrin internalization was observed in these cells, whereas recycling was inhibited. Cytosol containing rab5 Q79L stimulated homotypic early endosome fusion in vitro, even though it contained only a small amount of the isoprenylated protein. A different mutant, rab5 S34N, was found, like the inhibitory p21‐ras S17N mutant, to have a preferential affinity for GDP. Overexpression of rab5 S34N induced the accumulation of very small endocytic profile and inhibited transferrin endocytosis. This protein inhibited fusion between early endosomes in vitro. The opposite effects of the rab5 Q79L and S34N mutants suggest that rab5:GTP is required prior to membrane fusion, whereas GTP hydrolysis by rab5 occurs after membrane fusion and functions to inactivate the protein.