Rho family-specific guanine nucleotide dissociation inhibitors (RhoGDIs) decrease the rate of nucleotide dissociation and release Rho proteins such as RhoA, Rac and Cdc42 from membranes, forming tight complexes that shuttle between cytosol and membrane compartments. We have solved the crystal structure of a complex between the RhoGDI homolog LyGDI and GDP-bound Rac2, which are abundant in leukocytes, representing the cytosolic, resting pool of Rho species to be activated by extracellular signals. The N-terminal domain of LyGDI (LyN), which has been reported to be flexible in isolated RhoGDIs, becomes ordered upon complex formation and contributes more than 60% to the interface area. The structure is consistent with the C-terminus of Rac2 binding to a hydrophobic cavity previously proposed as isoprenyl binding site. An inner segment of LyN forms a helical hairpin that contacts mainly the switch regions of Rac2. The architecture of the complex interface suggests a mechanism for the inhibition of guanine nucleotide dissociation that is based on the stabilization of the magnesium (Mg2+) ion in the nucleotide binding pocket.