Morphogenesis of the Drosophila embryo is associated with dynamic rearrangement of the actin cytoskeleton mediated by small GTPases of the Rho family. These GTPases act as molecular switches that are activated by guanine nucleotide exchange factors. One of these factors, DRhoGEF2, plays an important role in the constriction of actin filaments during pole cell formation, blastoderm cellularization, and invagination of the germ layers. Here, we show that DRhoGEF2 is equally important during morphogenesis of segmental grooves, which become apparent as tissue infoldings during mid-embryogenesis. Examination of DRhoGEF2-mutant embryos indicates a role for DRhoGEF2 in the control of cell shape changes during segmental groove morphogenesis. Overexpression of DRhoGEF2 in the ectoderm recruits myosin II to the cell cortex and induces cell contraction. At groove regression, DRhoGEF2 is enriched in cells posterior to the groove that undergo apical constriction, indicating that groove regression is an active process. We further show that the Formin Diaphanous is required for groove formation and strengthens cell junctions in the epidermis. Morphological analysis suggests that Dia regulates cell shape in a way distinct from DRhoGEF2. We propose that DRhoGEF2 acts through Rho1 to regulate acto-myosin constriction but not Diaphanous-mediated F-actin nucleation during segmental groove morphogenesis.