Rab GTPases are localized to distinct subsets of organelles within the cell, where they regulate SNARE-mediated membrane trafficking between organelles. One factor required for Rab localization and function is Rab GDP dissociation inhibitor (GDI), which is proposed to recycle Rab after vesicle fusion by extracting Rab from the membrane and loading Rab onto newly formed transport intermediates. GDI is composed of two domains; Rab binding is mediated by Domain I, and the function of Domain II is not known. In this study, Domain II of yeast GDI, encoded by the essential GDI1/SEC19 gene, was targeted in a genetic screen to obtain mutants that might lend insight into the function of this domain. In one gdi1 mutant, the cytosolic pools of all Rabs tested were depleted, and Rab accumulated on membranes, suggesting that this mutant Gdi1 protein has a general defect in extraction of Rab from membranes. In a second gdi1 mutant, the endosomal/vacuolar Rabs Vps21/Ypt51p and Ypt7p accumulated in the cytosol bound to Gdi1p, but localization of Ypt1p and Sec4p were not significantly affected. Using an in vitro assay which reconstitutes Gdi1p-mediated membrane loading of Rab, this mutant Gdi1p was found to be defective in loading of Vps21p but not Ypt1p. Loading of Vps21p by loading-defective Gdi1p was restored when acceptor membranes prepared from a deletion strain lacking Vps21p were used. These results suggest that membrane-associated Rab may regulate recruitment of GDI-Rab from the cytosol, possibly by regulating a GDI-Rab receptor. We conclude that Domain II of Gdi1p is essential for Rab loading and Rab extraction, and confirm that each of these activities is required for Gdi1p function in vivo.