Vimentin intermediate filaments (VIFs), expressed in most mesenchymal and cancer cells, undergo dramatic reorganization during cell migration; however, the mechanism remains obscure. This study demonstrates that upon growth-factor stimulation, Src directly phosphorylates vimentin at Tyr117, leading to VIF disassembly into squiggles and particles at the cell edge during lamellipodia formation. The protein tyrosine phosphatase SHP2 counteracted the Src effects on VIF tyrosine phosphorylation and organization. VIFs formed by vimentin Y117D mutant were more soluble and dynamic than those formed by the wild-type and Y117F mutant. Increased expression of vimentin promoted growth-factor induced lamellipodia formation and cell migration, whereas the mutants suppressed both. The vimentin-induced increase in lamellipodia formation correlated with the activation of Rac and Vav2, with the latter associated with VIFs and recruited to the plasma membrane upon growth-factor stimulation. These results reveal a novel mechanism for regulating VIF dynamics through Src and SHP2 and demonstrate that proper VIF dynamics are important for Rac activation and cell migration.