The Rho family GTPase Cdc42 is recognized for its role in cellular proliferation and transformation. However, the mechanism by which it promotes cell cycle progression has remained undefined. Using an inducible expression system, we show that constitutively active Cdc42 (Cdc42V12) is sufficient by itself to induce anchorage-independent but not mitogen-independent growth in NIH3T3 cells. However, Cdc42V12 markedly accelerates activation of cyclin E-Cdk2 in response to mitogen. These effects were highly specific, as the kinetics of cyclin D-Cdk4 activation was unaltered. Cdc42V12 promotes Cdk2 activation by selectively inducing cyclin E expression without affecting other regulatory proteins such as the p27 Cdk inhibitor or Cdc25A. Furthermore, Cdc42V12 was able to activate a reporter gene driven by the cyclin E promoter in the absence of exogenous mitogen or adhesion. Cyclin E induction was sensitive to rapamycin but not inhibitors of mitogen-activated protein kinases, implicating p70 S6 kinase (p70S6k) as the relevant mediator. Consistent with this notion, wild type and constitutively active alleles of p70S6k were sufficient to activate the cyclin E promoter. In sum, these studies provide novel insights into the mechanism by which Cdc42 promotes G1 progression.