Recent evidence suggests a close association between extracellular E-cadherin mutation in diffuse-type gastric carcinoma and the acquisition of a migratory phenotype of tumour cells. To characterise the cellular machinery that mediates the gain of motility of tumour cells with mutant E-cadherin, we turned to the small Rho GTPases Rac1 and Rho because they have been implicated in pathological processes including tumour cell migration and invasion. In the present study, we analyse the activity of Rac1 and Rho in relation to E-cadherin harbouring an in-frame deletion of exon 8, and prove for the first time that the mutation reduces the ability of E-cadherin to activate Rac1 and to inhibit Rho. We provide evidence that the lack of Rac1 activation observed in response to mutant E-cadherin influences the downstream signalling of Rac1, as is shown by the decrease in the binding of the Rac1 effector protein IQGAP1 to Rac1-GTP. Moreover, reduced membranous localisation of p120-catenin in mutant E-cadherin-expressing cells provides an explanation for the lack of negative regulation of Rho by mutant E-cadherin. Further, we show by time-lapse laser-scanning microscopy and invasion assay that the enhanced motility and invasion associated with mutant E-cadherin is sensitive to the inhibition of Rac1 and Rho. Together, these findings present evidence that the mutation of E-cadherin influences Rac1 and Rho activation in opposite directions, and that Rac1 and Rho are involved in the establishment of the migratory and invasive phenotype of tumour cells that have an E-cadherin mutation.