Rho family small G-protein activity is controlled by guanine nucleotide exchange factors that stimulate the release of GDP, thus allowing GTP binding. Once activated, Rho proteins control cell signaling through interactions with downstream effector proteins, leading to changes in cytoskeletal organization and gene expression. The ability of Rho family members to modulate the activity of other Rho proteins is also intrinsic to these processes. In this work we show that the Rac/Cdc42hs-regulated protein kinase PAK1 down-regulates the activity of the RhoA-specific guanine nucleotide exchange factor NET1. Specifically, PAK1 phosphorylates NET1 on three sites in vitro: serines 152, 153, and 538. Replacement of serines 152 and 153 with glutamate residues down-regulates the activity of NET1 as an exchange factor in vitro and its ability to stimulate actin stress fiber formation in cells. Using a phospho-specific antibody that recognizes NET1 phosphorylated on serine 152, we show that PAK1 phosphorylates NET1 on this site in cells and that Rac1 stimulates serine 152 phosphorylation in a PAK1-dependent manner. Furthermore, coexpression of constitutively active PAK1 inhibits the ability of NET1 to stimulate actin polymerization only when serines 152 and 153 are present. These data provide a novel mechanism for the control of RhoA activity by Rac1 through the PAK-dependent phosphorylation of NET1 to reduce its activity as a guanine nucleotide exchange factor.