Cdc42 is a Ras-related GTPase that plays an important role in the regulation of a range of cellular functions, including cell migration, proliferation, and survival. Consistent with its critical functions in vitro, the inactivation of Cdc42 in mice has been shown to result in embryonic lethality at embryonic day 6.5 (E6.5) before blood vessel formation. To determine the role of Cdc42 in new blood vessel formation, we have generated vascular endothelial cell (EC)-specific Cdc42 knockout mice by crossing Cdc42(flox/flox) mice with Tie2-Cre mice. The deletion of Cdc42 in ECs caused embryonic lethality with vasculogenesis and angiogenesis defects. We observed that Cdc42 is critical for EC migration and survival but not for cell cycle progression. Moreover, we found that the inactivation of Cdc42 in ECs decreased the level of vascular endothelial growth factor receptor 2 (VEGFR2) protein on the EC surface and promoted the production of a 75-kDa membrane-associated C-terminal VEGFR2 fragment. Using cultured primary mouse ECs and human umbilical vein ECs, we have demonstrated that the deletion of Cdc42 increased ADAM17-mediated VEGFR2 shedding. Notably, inhibition of ADAM17 or overexpression of VEGFR2 can partially reverse Cdc42 deletion-induced EC apoptosis. These data indicate that Cdc42 is essential for VEGFR2-mediated signal transduction in blood vessel formation.