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.