Rho family proteins are prenylated by geranylgeranyltransferase type I (GGTase-I), which normally target proteins to membranes for GTP-loading. However, conditional deletion of GGTase-I in mouse macrophages increases GTP-loading of Rho proteins, leading to enhanced inflammatory responses and severe rheumatoid arthritis. Here we show that heterozygous deletion of the Rho family gene Rac1, but not Rhoa and Cdc42, reverses inflammation and arthritis in GGTase-I-deficient mice. Non-prenylated Rac1 has a high affinity for the adaptor protein Ras GTPase-activating-like protein 1 (Iqgap1), which facilitates both GTP exchange and ubiquitination-mediated degradation of Rac1. Consistently, inactivating Iqgap1 normalizes Rac1 GTP-loading, and reduces inflammation and arthritis in GGTase-I-deficient mice, as well as prevents statins from increasing Rac1 GTP-loading and cytokine production in macrophages. We conclude that blocking prenylation stimulates Rac1 effector interactions and unleashes proinflammatory signaling. Our results thus suggest that prenylation normally restrains innate immune responses by preventing Rac1 effector interactions.