The small guanosine triphosphatase Rac1 is activated by E-cadherin-mediated cell-cell adhesion and is required for the accumulation of actin filaments, E-cadherin, and beta-catenin at sites of cell-cell contact. However, the modes of activation and action of Rac1 remain to be clarified. We here found that suppression of IQGAP1, an actin-binding protein and an effector of Rac1, by small interfering RNA apparently reduced the accumulation of actin filaments, E-cadherin, and beta-catenin at sites of cell-cell contact in Madin-Darby canine kidney II epithelial cells under the conditions in which knockdown of Rac1 reduced them. Knockdown of Rac1 did not affect the localization of these junctional components in cells expressing a constitutively active IQGAP1 mutant defective in Rac1/Cdc42 binding. Knockdown of either Rac1 or IQGAP1 accelerated the 12-O-tetradecanoylphorbol-13-acetate-induced cell-cell dissociation. The basal Rac1 activity, which was maintained by E-cadherin-mediated cell-cell adhesion, was inhibited in the IQGAP1-knocked down cells, whereas the Rac1 activity was increased in the cells overexpressing IQGAP1. Together, these results indicate that Rac1 enhances the accumulation of actin filaments, E-cadherin, and beta-catenin by acting on IQGAP1 and suggest that there exists a positive feedback loop comprised of "E-cadherin-mediated cell-cell adhesion --> Rac1 activation --> actin-meshwork formation by IQGAP1 --> increasing E-cadherin-mediated cell-cell adhesion."