Regulation of neuronal morphology and activity-dependent synaptic modifications involves reorganization of the actin cytoskeleton. Dynamic changes of the actin cytoskeleton in many cell types are controlled by small GTPases of the Rho family, such as RhoA, Rac1 and Cdc42. As key regulators of both actin and microtubule cytoskeleton, Rho GTPases have also emerged as important regulators of dendrite and spine structural plasticity. Multiple studies suggest that Rac1 and Cdc42 are positive regulators promoting neurite outgrowth and growth cone protrusion, while the activation of RhoA induces stress fiber formation, leading to growth cone collapse and neurite retraction. This review focuses on recent advances in our understanding of the molecular mechanisms underlying physiological and pathological functions of Cdc42 in the nervous system. We also discuss application of different FRET-based biosensors as a powerful approach to examine the dynamics of Cdc42 activity in living cells.