Progenitor cells in the ventricular zone (VZ) and subventricular zone (SVZ) of the developing forebrain give rise to neurons and glial cells, and are characterized by distinct morphologies and proliferative behaviors. The mechanisms that distinguish VZ and SVZ progenitors are not well understood, although the homeodomain transcription factor Cux2 and Cyclin D2, a core component of the cell cycle machinery, are specifically involved in controlling SVZ cell proliferation. Rho GTPases have been implicated in regulating the proliferation, differentiation, and migration of many cell types, and one family member, Cdc42, affects the polarity and proliferation of radial glial cells in the VZ. Here, we show that another family member, Rac1, is required for the normal proliferation and differentiation of SVZ progenitors and for survival of both VZ and SVZ progenitors. A forebrain-specific loss of Rac1 leads to an SVZ-specific reduction in proliferation, a concomitant increase in cell cycle exit, and premature differentiation. In Rac1 mutants, the SVZ and VZ can no longer be delineated, but rather fuse to become a single compact zone of intermingled cells. Cyclin D2 expression, which is normally expressed by both VZ and SVZ progenitors, is reduced in Rac1 mutants, suggesting that the mutant cells differentiate precociously. Rac1-deficient mice can still generate SVZ-derived upper layer neurons, indicating that Rac1 is not required for the acquisition of upper layer neuronal fates, but instead is needed for the normal regulation of proliferation by progenitor cells in the SVZ.