The oculocerebrorenal syndrome of Lowe (OCRL) is a rare X-linked disorder characterized by severe mental retardation, congenital cataracts and renal Fanconi syndrome. OCRL1 protein is a phosphatidylinositol 4,5-bisphosphate 5-phosphatase with a C-terminal RhoGAP domain. Considering the pleiotropic cellular functions of Rho GTPases (Rho, Rac and Cdc42) and their dysregulation in several forms of mental retardation, we have investigated the so far unexplored function of the RhoGAP domain of OCRL1. Activated Rac GTPase was found to stably associate with the OCRL1 RhoGAP domain in vitro and to co-immunoprecipitate with endogenous OCRL1. Contrasting with other GAPs, OCRL1 RhoGAP exhibited a significant interaction with GDP bound Rac in vitro. As compared to Rac, other Rho GTPases tested showed reduced (Cdc42) or no binding (RhoA, RhoG) to OCRL1 RhoGAP. Immunofluorescence studies in HEK and COS7 cells and Golgi perturbation assays with Brefeldin A demonstrated that a fraction of endogenous Rac co-localizes with OCRL1 and gamma-adaptin in the trans-Golgi network. The OCRL1 RhoGAP domain showed low Rac GAP activity in vitro, and when expressed in Swiss 3T3 cells induced specific inhibition of RacGTP dependent ruffles, consistent with OCRL1 being an active RacGAP. OCRL1 appears to be a bifunctional protein which, in addition to its PIP2 5-phosphatase activity, binds to Rac GTPase. This novel property may play a role in localizing OCRL1 to the trans-Golgi network. Moreover, loss of OCRL1 RhoGAP and the resulting alteration in Rho pathways may contribute to mental retardation in Lowe syndrome, as illustrated in other forms of X-linked mental retardation.