Members of the Ras superfamily of small GTPases and the heterotrimeric G protein gamma subunit are methylated on their carboxy-terminal cysteine residues by isoprenylcysteine methyltransferase. In Dictyostelium discoideum, small GTPase methylation occurs seconds after stimulation of starving cells by cAMP and returns quickly to basal levels, suggesting an important role in cAMP-dependent signaling. Deleting the isoprenylcysteine methyltransferase-encoding gene causes dramatic defects. Starving mutant cells do not propagate cAMP waves in a sustained manner, and they do not aggregate. Motility is rescued when cells are pulsed with exogenous cAMP, or coplated with wild-type cells, but the rescued cells exhibit altered polarity. cAMP-pulsed methyltransferase-deficient cells that have aggregated fail to differentiate, but mutant cells plated in a wild-type background are able to do so. Localization of and signaling by RasG is altered in the mutant. Localization of the heterotrimeric Ggamma protein subunit was normal, but signaling was altered in mutant cells. These data indicate that isoprenylcysteine methylation is required for intercellular signaling and development in Dictyostelium.