Net1 is a nuclear Rho guanine nucleotide exchange factor that is specific for the RhoA subfamily of small G proteins. Truncated forms of Net1 are transforming in NIH3T3 cells, and this activity requires cytoplasmic localization of Net1 as well as the presence of a COOH-terminal PDZ binding site. We have previously shown that Net1 interacts with PDZ domain-containing proteins within the Discs Large (Dlg) family and relocalizes them to the nucleus. In the present work, we demonstrate that Net1 binds directly to the first two PDZ domains of Dlg1 and that both PDZ domains are required for maximal interaction in cells. Furthermore, we show that Net1 is an unstable protein in MCF7 breast epithelial cells and that interaction with Dlg1 significantly enhances Net1 stability. Stabilization by Dlg1 significantly increases the ability of Net1 to stimulate RhoA activation in cells. The stability of endogenous Net1 is strongly enhanced by cell-cell contact, and this correlates with a dramatic increase in the interaction between Net1 and Dlg1. Importantly, disruption of E-cadherin-mediated cell contacts, either by depletion of external calcium or by treatment with transforming growth factor beta, leads to a rapid loss of the interaction between Net1 and Dlg1 and a subsequent increase in the ubiquitylation of Net1. These results indicate that Net1 requires interaction with PDZ domain proteins, such as Dlg1, to protect it from proteasome-mediated degradation and to maximally stimulate RhoA and that this interaction is regulated by cell-cell contact.