Classical cadherins function as adhesion-activated cell signalling receptors. Upon adhesive ligation cadherins induce signalling cascades leading to actin cytoskeletal reorganization that is imperative for cadherin function. In particular, cadherin ligation activates actin assembly by the Arp2/3 complex, a process that critically affects the ability of cells to form and extend cadherin-based contacts. However, the signalling pathway(s) that activate Arp2/3 downstream of cadherin adhesion remain poorly understood. In this report we focused on the Rho family GTPases, Rac and Cdc42, that can signal to Arp2/3. We found that homophilic engagement of E-cadherin simultaneously activates both Rac1 and Cdc42. However, by comparing the impact of dominant-negative Rac1 and Cdc42 mutants, we show that Rac1 is the dominant regulator of cadherin-directed actin assembly and homophilic contact formation. To pursue upstream elements of the Rac1 signaling pathway, we focused on the potential contribution of Tiam1 to cadherin-activated Rac signaling. We found that Tiam1 or the closely-related Tiam2/STEF1 were recruited to cell-cell contacts in an E-cadherin-dependent fashion. Moreover, a dominant-negative Tiam1 mutant perturbed cell spreading on cadherin-coated substrata. However, disruption of Tiam1 activity using dominant negative mutants or RNAi did not affect the ability of E-cadherin ligation to activate Rac1. We conclude that Rac1 critically influences cadherin-directed actin assembly as part of a signaling pathway independent of Tiam1.