We previously showed that p21-activated kinase 2 (PAK2), a major PAK isoform expressed in PC12 cells, mediates neurite outgrowth via Rac1 GTPase. RhoGDI1 forms a complex with Rac1, resulting in its inhibition. Rac1 activation requires dissociation from RhoGDI1. Here, we show that PAK2 mediates basic fibroblast growth factor (bFGF)-stimulated neurite outgrowth via phosphorylation of RhoGDI1. RhoGDI1 was shown to be associated with PAK2, with phosphorylation of Ser34 and Ser101 by active PAK2 evident in vitro and in vivo. A RhoGDI1 phosphomimetic mutant (S34E/S101E) was dissociated from Rac1/Cdc42, whereas the wild-type or a nonphosphorylatable mutant (S34A/S101A) formed a tight complex. Consistent with this, PC12 cells expressing the phosphomimetic mutant displayed Rac1/Cdc42 activation in response to bFGF stimulation. Neurite outgrowth was also enhanced in PC12 cells expressing the phosphomimetic mutant. These results suggest that PAK2-mediated RhoGDI1 phosphorylation stimulates dissociation of RhoGDI1-Rac1/Cdc42 complex accompanied by relief of inhibitory effect on Rac1/Cdc42, which promotes neuronal differentiation.