Cadherins are calcium-dependent cell–cell adhesion molecules that require the interaction of the cytoplasmic tail with the actin cytoskeleton for adhesive activity. Because of the functional relationship between cadherin receptors and actin filament organization, we investigated whether members of the Rho family of small GTPases are necessary for cadherin adhesion. In fibroblasts, the Rho family members Rho and Rac regulate actin polymerization to produce stress fibers and lamellipodia, respectively. In epithelial cells, we demonstrate that Rho and Rac are required for the establishment of cadherin-mediated cell–cell adhesion and the actin reorganization necessary to stabilize the receptors at sites of intercellular junctions. Blocking endogenous Rho or Rac selectively removed cadherin complexes from junctions induced for up to 3 h, while desmosomes were not perturbed. In addition, withdrawal of cadherins from intercellular junctions temporally precedes the removal of CD44 and integrins, other microfilament-associated receptors. Our data showed that the concerted action of Rho and Rac modulate the establishment of cadherin adhesion: a constitutively active form of Rac was not sufficient to stabilize cadherindependent cell–cell contacts when endogenous Rho was inhibited. Upon induction of calcium-dependent intercellular adhesion, there was a rapid accumulation of actin at sites of cell–cell contacts, which was prevented by blocking cadherin function, Rho or Rac activity. However, if cadherin complexes are clustered by specific antibodies attached to beads, actin recruitment to the receptors was perturbed by inhibiting Rac but not Rho. Our results provide new insights into the role of the small GTPases in the cadherin-dependent cell– cell contact formation and the remodelling of actin filaments in epithelial cells.