Identifying events that regulate the prenylation and localization of small GTPases will help define new strategies for therapeutic targeting of these proteins in disorders such as cancer, cardiovascular disease, and neurological deficits. Splice variants of the chaperone protein SmgGDS (encoded byRAP1GDS1) are known to regulate prenylation and trafficking of small GTPases. The SmgGDS-607 splice variant regulates prenylation by binding preprenylated small GTPases but the effects of SmgGDS binding to the small GTPase RAC1versusthe splice variant RAC1B are not well defined. Here we report unexpected differences in the prenylation and localization of RAC1 and RAC1B and their binding to SmgGDS. Compared to RAC1, RAC1B more stably associates with SmgGDS-607, is less prenylated, and accumulates more in the nucleus. We show that the small GTPase DIRAS1 inhibits binding of RAC1 and RAC1B to SmgGDS and reduces their prenylation. These results suggest that prenylation of RAC1 and RAC1B is facilitated by binding to SmgGDS-607 but the greater retention of RAC1B by SmgGDS-607 slows RAC1B prenylation. We show that inhibiting RAC1 prenylation by mutating the CAAX motif promotes RAC1 nuclear accumulation, suggesting that differences in prenylation contribute to the different nuclear localization of RAC1versusRAC1B. Finally, we demonstrate RAC1 and RAC1B that cannot be prenylated bind GTP in cells, indicating that prenylation is not a prerequisite for activation. We report differential expression of RAC1 and RAC1B transcripts in tissues, consistent with these two splice variants having unique functions that might arise in part from their differences in prenylation and localization.