Cell polarity is a key element of development in most eukaryotes. The Rho GTPase activating protein Rgd1p positively regulates the GTPase activity of Rho3p and Rho4p, which are involved in bud growth and cytokinesis, respectively, in the budding yeast Saccharomyces cerevisiae. Rgd1p contains an F-BAR domain at its N-terminal end in addition to its RhoGAP domain at its C-terminal end. We demonstrate here that phospholipids discriminate between the GTPase activities of Rho3p and Rho4p through Rgd1p and specifically stimulate the RhoGAP activity on Rho4p. The central region of the protein contiguous to the F-BAR domain is required for this stimulation. The F-BAR region binds to phosphoinositides in vitro and also plays a key role in the localization of Rgd1p to the bud tip and neck during the cell cycle. Studies of heat-sensitive mutants lacking phosphatidylinositol 4-phosphate and phosphatidylinositol 4,5-biphosphate suggested that Rgd1p initially binds to Golgi membranes via phosphatidylinositol 4-phosphate and is then transported to the plasma membrane, where it binds phosphatidylinositol 4,5-biphosphate. We demonstrate here the dual effects of phosphoinositides on a RhoGTPase activating protein. Phosphoinositides both regulate the recruitment and trafficking of Rgd1p to membranes via the F-BAR domain and specifically stimulate GTPase-activating protein activity, consistent with functional interplay between lipids, RhoGAP and its related GTPases in yeast growth.