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The phagocytic NADPH oxidase [NOX] has been implicated in the generation of superoxides in the pancreatic β-cell. Herein, using normal rat islets and clonal INS 832/13 cells, we tested the hypothesis that activation of the small G-protein Rac1, which is a member of the NOX holoenzyme, is necessary for palmitate [PA]-induced generation of superoxides in pancreatic β-cells. Incubation of isolated β-cells with PA potently increased the NOX activity culminating in a significant increase in the generation of superoxides and lipid peroxides in these cells; such effects of PA were attenuated by diphenyleneiodonium [DPI], a known inhibitor of NOX. In addition, PA caused a transient, but significant activation [i.e., GTP-bound form] of Rac1 in these cells. NSC23766, a selective inhibitor of Rac1, but not Cdc42 or Rho activation, inhibited Rac1 activation and the generation of superoxides and lipid peroxides induced by PA. Fumonisin B-1 [FB-1], which inhibits de novo synthesis of ceramide [CER] from PA, also attenuated PA-induced superoxide and lipid peroxide generation and NOX activity implicating intracellularly generated CER in the metabolic effects of PA; such effects were also demonstrable in the presence of the cell-permeable C2-CER. Further, NSC23766 prevented C2-CER-induced Rac1 activation and production of superoxides and lipid peroxides. Lastly, C2-CER, but not its inactive analogue, significantly reduced the mitochondrial membrane potential, which was prevented to a large degree by NSC23766. Together, our findings suggest that Tiam1/Rac1 signaling pathway regulates PA-induced, CER-dependent superoxide generation and mitochondrial dysfunction in pancreatic β-cells.