The Rho-GTPase Cdc42 is important for the establishment and maintenance of epithelial polarity. Signaling from Cdc42 is propagated via its effector molecules that specifically bind to Cdc42 in the GTP-bound form. The cell-cell contact regulator and actin-binding protein IQGAP1 is described as effector of Cdc42 and Rac. Unexpectedly, we show in this study that IQGAP1 bound also directly nucleotide-depleted Cdc42 (Cdc42-ND). This interaction was enhanced in the presence of phosphatase inhibitors and in epithelial cells without cell-cell contacts. Tandem mass spectrometry analysis and immunoprecipitation experiments revealed that IQGAP1 was Ser1443-phosphorylated in vivo, potentially by protein kinase Cepsilon and upon loss of cell-cell contacts. In addition, we identified two independent domains of the IQGAP1 C terminus that bound exclusively Cdc42-ND. These domains interacted with each other, favoring the binding to Cdc42-GTP. Moreover, phosphorylation on Ser1443 strongly inhibited this intramolecular interaction. Thus, we unraveled a molecular mechanism that reveals a novel type of Rho-GTPase regulator. We propose that, depending on its phosphorylation state, IQGAP1 might serve as an effector or sequester nucleotide-free Cdc42 to prevent signaling.