Numerous cell surface receptors, including tyrosine kinase and G protein-coupled receptors, play critical roles in endothelial cell function and blood vessel development. These receptors share the ability of stimulating an intricate network of intracellular signaling pathways, including the activation of members of the Ras and Rho family of small GTPases. However, the contribution of these signaling molecules to the numerous biological activities performed by endothelial cells is still not fully understood. Here, we have used a conditional Cre/Flox approach, enabling the deletion of the Rac1 gene in endothelial cells, to examine the role of the Rho-related GTPase Rac1 in endothelial cell function and vascular development. Rac1 excision in primary endothelial cells in vitro revealed that Rac1 plays a central role in endothelial cell migration, tubulogenesis, adhesion, and permeability in response to vascular endothelial growth factor (VEGF) and sphingosine-1-phosphate (S1P), which is likely due to the inability of Rac1-deficient endothelial cells to form lamellipodial structures and focal adhesions, and to remodel their cell-cell contacts. Importantly, endothelial-specific excision of Rac1 results in embryonic lethality in midgestation (around E9.5), and defective development of major vessels and complete lack of small branched vessels was readily observed in these endothelial Rac1-deficient embryos and their yolk sacs. These findings provide direct evidence that the activity of Rac1 in endothelial cells is essential for vascular development and suggest that Rac1 and its downstream targets may represent promising therapeutic targets for the treatment of numerous human diseases that involve aberrant neovascularization.