Rho-like GTPases, including Cdc42, Rac, and Rho, regulate signaling pathways that control actin cytoskeletal structures and transcriptional activation. The Tiam1 gene encodes an activator of Rac1, and similarly to constitutively activated (V12)Rac1, overexpression of Tiam1 in fibroblasts induces the formation of membrane ruffles. Tiam1 contains a Dbl homology (DH) domain and adjacent pleckstrin homology (PH) domain, hallmarks for activators of Rho-like GTPases. Unique for Tiam1 are an additional PH domain and a Discs-large homology region in the NH₂-terminal part of the protein. Here we show that both in fibroblasts and COS cells, membrane localization of Tiam1 is required for the induction of membrane ruffling. A detailed mutational analysis, in combination with confocal laser scanning microscopy and immunoelectron microscopy, demonstrates that the NH₂-terminal PH domain of Tiam1, but not the DH-adjacent PH domain, is essential for membrane association. This NH₂-terminal PH domain of Tiam1 can be functionally replaced by the myristoylated membrane localization domain of c-Src, indicating that the primary function of this PH domain is to localize the protein at the membrane. After serum starvation, both membrane association of Tiam1 and ruffling can be induced by serum, suggesting that receptor stimulation induces membrane translocation of Tiam1. Similar to V12Rac1, Tiam1 stimulates the activity of the c-Jun NH₂-terminal kinase (JNK). This Rac-dependent stimulation of JNK also requires membrane association of Tiam1. We conclude that the regulated membrane localization of Tiam1 through its NH₂-terminal PH domain determines the activation of distinct Rac-mediated signaling pathways.