Rabex-5 is a guanine nucleotide exchange factor (GEF) for Rab5. Here, we report the identification of a novel functional domain of Rabex-5 that is essential for its membrane targeting and Rab5 GEF activity in vivo. The data show that full-length Rabex-5 efficiently activates Rab5 in the cell. However, the GEF domain itself (residues 135-399) is inactive in this respect, despite its activity in vitro. Generation and characterization of a series of Rabex-5 constructs reveal that the GEF domain is unable to target to early endosomes and that a sequence N-terminal to the GEF domain can restore its early endosomal targeting and its ability to activate Rab5 in the cell. This region (residues 81-135) is termed membrane-binding motif, which together with the downstream helical bundle domain (residues 135-230) forms an early endosomal targeting (EET) domain necessary and sufficient for association with early endosomes. Furthermore, several active Rabex-5 constructs do not contain the Rabaptin-5-binding domain in the C-terminal region. Thus, Rabex-5 can target to early endosomes via the EET domain and activate Rab5 in a Rabaptin-5-independent manner in vivo. We discuss a model to reconcile these in vivo data with previous in vitro results on Rabex-5 function and its interaction with Rabaptin-5.