Cellular levels of phosphatidylinositol 3,4,5-trisphosphate (PtdIns(3,4,5)P3) are rapidly elevated in response to activation of growth factor receptor tyrosine kinases. This polyphosphoinositide binds the pleckstrin homology (PH) domain of GRP1, a protein that also contains 200 residues with high sequence similarity to a segment of the yeast Sec7 protein that functions as an ADP ribosylation exchange factor (ARF) (Klarlund, J., Guilherme, A., Holik, J. J., Virbasius, J. V., Chawla, A., and Czech, M. P. (1997) Science 275, 1927-1930). Here we show that dioctanoyl PtdIns(3,4,5)P3 binds the PH domain of GRP1 with a Kd = 0.5 microM, an affinity 2 orders of magnitude greater than dioctanoyl-PtdIns(4,5)P2. Further, the Sec7 domain of GRP1 is found to catalyze guanine nucleotide exchange of ARF1 and -5 but not ARF6. Importantly, PtdIns(3,4,5)P3, but not PtdIns(4,5)P2, markedly enhances the ARF exchange activity of GRP1 in a reaction mixture containing dimyristoylphosphatidylcholine micelles, 3-[(3-cholamidopropyl)dimethylammonio]-1-propanesulfonic acid, and a low concentration of sodium cholate. PtdIns(3,4,5)P3-mediated ARF nucleotide exchange through GRP1 is selectively blocked by 100 microM inositol 1,3,4,5-tetrakisphosphate, which also binds the PH domain of GRP1. Taken together, these data are consistent with the hypothesis that selective recruitment of GRP1 to PtdIns(3,4,5)P3 in membranes activates ARF1 and -5, known regulators of intracellular membrane trafficking.