Transfection of NIH3T3 cells with an osteosarcoma expression cDNA library led to the appearance of foci of morphologically transformed cells which were found to harbor a novel oncogene, ost. The ost product was activated by truncation of the N-terminal domain of the ost proto-oncogene and was highly tumorigenic in nude mouse assays. The proto-ost cDNA, isolated subsequently, encodes a predicted protein of 100 kDa containing DH (Db1 homology) and PH (pleckstrin homology) domains. Ost is mainly phosphorylated on serine and localized in the cytoplasm. Purified Ost protein catalyzed guanine nucleotide exchange on RhoA and Cdc42 among the Rho and Ras family members tested, indicating that Ost can activate these small GTP-binding proteins. Ost did not detectably associate with RhoA or Cdc42, but interacted specifically with the GTP-bound form of Rac1, suggesting that Ost can function as an effector of Rac1. These results suggest that Ost is a critical regulatory component which links pathways that signal through Rac1, RhoA and Cdc42. Of the tissues examined, expression of ost was the highest in brain and could be localized to neurons and alpha-tanycytes, suggesting that Ost may participate in axonal transport in these specialized cells.