Vav is a guanine nucleotide exchange factor for the Rho/Rac family predominantly expressed in hematopoietic cells and implicated in cell proliferation and cytoskeletal organization. The oncogenic tyrosine kinase Bcr-Abl has been shown to activate Rac-1, which is important for Bcr-Abl induced leukemogenesis. Previous studies by Matsuguchi et al. (Matsuguchi, T., Inhorn, R. C., Carlesso, N., Xu, G., Druker, B., and Griffin, J. D. (1995) EMBO J. 14, 257-265) describe enhanced phosphorylation of Vav in Bcr-Abl-expressing Mo7e cells yet fail to demonstrate association of the two proteins. Here, we report the identification of a direct complex between Vav and Bcr-Abl in yeast, in vitro and in vivo. Furthermore, we show tyrosine phosphorylation of Vav by Bcr-Abl. Mutational analysis revealed that the SH2 domain and the C-terminal SH3 domain as well as a tetraproline motif directly adjacent to the N-terminal SH3 domain of Vav are important for establishing this phosphotyrosine dependent interaction. Activation of Rac-1 by Bcr-Abl was abrogated by co-expression of the Vav C terminus encoding the SH3-SH2-SH3 domains as a dominant negative construct. Bcr-Abl transduced primary bone marrow from Vav knock-out mice showed reduced proliferation in a culture cell transformation assay compared with wild-type bone marrow. These results suggest, that Bcr-Abl utilizes Vav as a guanine nucleotide exchange factor to activate Rac-1 in a process that involves a folding mechanism of the Vav C terminus. Given the importance of Rac-1 activation for Bcr-Abl-mediated leukemogenesis, this mechanism may be crucial for the molecular pathogenesis of chronic myeloid leukemia and of importance for other signal transduction pathways leading to the activation of Rac-1.