The small G proteins Rheb and Ras, important in cell growth and proliferation, are farnesylated in their C-terminal domain. This post-translational modification is important for membrane localization and adds a layer of regulation. The proteins are trafficked to different membrane compartments by their guanine-nucleotide dissociation inhibitor (GDI) PDEδ, which sequesters the hydrophobic modification and solubilizes the G proteins. GDI displacement factors (GDFs) then unload the G proteins at their target membranes, but the mechanism by which this occurs is unknown. Wittinghofer and colleagues have examined the interaction between Rheb and PDEδ and how it is regulated by GDFs Arl2 and Arl3, known binding partners of PDEδ. They determined the crystal structure of PDEδ in complex with farnesylated Rheb (F-Rheb), revealing the hydrophobic pocket used by PDEδ to bury the lipid group. Most of the contacts between the two proteins occur at the farnesylation site, far away from the switch region of Rheb, explaining previous observations about the nucleotide-independent binding of G proteins to PDEδ. A previous structure of Arl2-GTP–PDEδ showed the newly identified hydrophobic pocket of PDEδ in a closed conformation, suggesting that Arl2 may regulate PDEδ association with F-Rheb allosterically. Functional data confirm that Arl2 can promote GTP-dependent dissociation of PDEδ. Formation of the ternary complex Arl2-GTP–PDEδ–F-Rheb accelerates the release of the farnesylated protein, and the authors identified residues on PDEδ involved in this allosteric regulation. These findings provide a model for how other GDFs may act to regulate their GDIs and point to another target site for development of drugs for the related oncogenic G protein Ras. (Nat. Chem. Biol. doi:10.1038/nchembio.686, published online 16 October 2011)