The neurofibromatosis type 2 tumor suppressor gene, NF2, is mutated in the germ line of NF2 patients and predisposes affected individuals to intracranial and spinal tumors. Moreover, somatic mutations of NF2 can occur in the sporadic counterparts of these neurological tumor types as well as in certain neoplasms of non-neuroectodermal origin, such as malignant mesothelioma and melanoma. NF2 encodes a 595-amino acid protein, merlin, which exhibits significant homology to the ezrin-radixin-moesin family of proteins. However, the mechanism by which merlin exerts its tumor suppressor activity is not well understood. In this investigation, we show that merlin is phosphorylated in response to expression of activated Rac and activated Cdc42 in mammalian cells. Furthermore, we demonstrate that merlin phosphorylation is mediated by p21-activated kinase (Pak), a common downstream target of both Rac and Cdc42. Both in vivo and in vitro kinase assays demonstrated that Pak can directly phosphorylate merlin at serine 518, a site that affects merlin activity and localization. These biochemical investigations provide insights into the regulation of merlin function and establish a framework for elucidating tumorigenic mechanisms involved in neoplasms associated with merlin inactivation.