The small GTPase Rab5 plays an essential role in endocytic traffic. Rab GDP dissociation inhibitor delivers Rab5 to the membrane, where a nucleotide exchange activity allows recruitment of an effector protein, Rabaptin-5. Here we uncovered a novel 60 kDa Rab5-binding protein, Rabex-5. Rabex-5 forms a tight physical complex with Rabaptin-5, and this complex is essential for endocytic membrane fusion. Sequencing of mammalian Rabex-5 by nanoelectrospray mass spectrometry and cloning revealed striking homology to Vps9p, a yeast protein implicated in endocytic traffic. Rabex-5 displays GDP/GTP exchange activity on Rab5 upon delivery of the GTPase to the membrane. This demonstrates that a soluble exchange factor coupled to a Rab effector translocates from cytosol to the membrane, where the complex stabilizes the GTPase in the active state.