Palladin is a widely expressed phosphoprotein that plays an important role in organizing the actin cytoskeleton. Palladin is concentrated in multiple actin-based structures involved in cell motility and adhesion, including stress fibers, focal adhesions, cell-cell junctions, growth cones and Z-discs. Here, we show that palladin also localizes to the dorsal, circular ruffles that form transiently in response to growth factor stimulation. More importantly, palladin knockdown results in decreased ruffle formation and decreased Rac activation following PDGF treatment. In addition, we describe a novel interaction between palladin and Eps8, a receptor tyrosine kinase (RTK) substrate that participates in the activation of the Rac-specific guanine nucleotide-exchange function of Sos-1. Eps8 was identified as a molecular partner for palladin in a yeast two-hybrid screen, and the interaction was confirmed biochemically in co-immunoprecipitation assays. The two proteins were found to colocalize extensively in dorsal ruffles. Palladin also localizes to podosomes after phorbol ester stimulation, and palladin knockdown results in decreased podosome formation in response to PDBu. Together, these data provide strong evidence for a direct and specific interaction between palladin and Eps8, and suggest that they act together in the rapid and transient remodeling of the actin cytoskeleton, which promotes the formation of highly dynamic membrane protrusions in response to PDGF and phorbol ester treatment.