The Rho family of small GTPases are membrane-associated molecular switches involved in the control of a wide range of cellular activities, including cell migration, adhesion, and proliferation. Cdc42 GTPase-activating protein (CdGAP) is a phosphoprotein showing GAP activity toward Rac1 and Cdc42. CdGAP activity is regulated in an adhesion-dependent manner and more recently, we have identified CdGAP as a novel molecular target in signaling and an essential component in the synergistic interaction between TGFβ and Neu/ErbB-2 signaling pathways in breast cancer cells. In this study, we identified a small polybasic region (PBR) preceding the RhoGAP domain that mediates specific binding to negatively charged phosphatidylinositol 3,4,5-trisphosphate (PI(3,4,5)P3). In vitro reconstitution of membrane vesicles loaded with prenylated Rac1 demonstrates that the PBR is required for full activation of CdGAP in the presence of PI(3,4,5)P3. In fibroblast cells, the expression of CdGAP protein mutants lacking an intact PBR shows a significant reduced ability of the protein mutants to induce cell rounding or to mediate negative effects on cell spreading. Furthermore, an intact PBR is required for CdGAP to inactivate Rac1 signaling into cells, whereas it is not essential in an in vitro context. Altogether, these studies reveal that specific interaction between negatively charged phospholipid PI(3,4,5)P3 and the stretch of polybasic residues preceding the RhoGAP domain regulates CdGAP activity in vivo and is required for its cellular functions.