Epithelial cell–cell adhesion and morphogenesis require dynamic control of actin-driven membrane remodeling. The Rho guanosine triphosphatase (GTPase) Cdc42 regulates sequential molecular processes during cell–cell junction formation; hence, mechanisms must exist that inactivate Cdc42 in a temporally and spatially controlled manner. In this paper, we identify SH3BP1, a GTPase-activating protein for Cdc42 and Rac, as a regulator of junction assembly and epithelial morphogenesis using a functional small interfering ribonucleic acid screen. Depletion of SH3BP1 resulted in loss of spatial control of Cdc42 activity, stalled membrane remodeling, and enhanced growth of filopodia. SH3BP1 formed a complex with JACOP/paracingulin, a junctional adaptor, and CD2AP, a scaffolding protein; both were required for normal Cdc42 signaling and junction formation. The filamentous actin–capping protein CapZ also associated with the SH3BP1 complex and was required for control of actin remodeling. Epithelial junction formation and morphogenesis thus require a dual activity complex, containing SH3BP1 and CapZ, that is recruited to sites of active membrane remodeling to guide Cdc42 signaling and cytoskeletal dynamics.