Rho GTPases (Rac, Rho, and Cdc42) play important roles in regulating cell function through their ability to coordinate the actin cytoskeleton, modulate the formation of signaling reactive oxidant species, and control gene transcription. Activation of Rho GTPase signaling pathways requires the regulated release of Rho GTPases from RhoGDI complexes, followed by their reuptake after membrane cycling. We show here that Src kinase binds and phosphorylates RhoGDI both in vitro and in vivo at Tyr156. Analysis of Rho GTPase-RhoGDI complexes using in vitro assays of complexation and in vivo by coimmunoprecipitation analysis indicates that Src-mediated phosphorylation of Tyr156 causes a dramatic decrease in the ability of RhoGDI to form a complex with RhoA, Rac1, or Cdc42. Phosphomimetic mutation of Tyr156-->Glu results in the constitutive association of RhoGDI(Y156E) with the plasma membrane and/or associated cortical actin. Substantial cortical localization of tyrosine-phosphorylated RhoGDI is also observed in fibroblasts expressing active Src, where it is most evident in podosomes and regions of membrane ruffling. Expression of membrane-localized RhoGDI(Y156E) mutant is associated with enhanced cell spreading and membrane ruffling. These results suggest that Src-mediated RhoGDI phosphorylation is a novel physiological mechanism for regulating Rho GTPase cytosol membrane-cycling and activity.