Prenylation (or geranylgeranylation) of Rab GTPases is catalysed by RGGT (Rab geranylgeranyl transferase) and requires REP (Rab escort protein). In the classical pathway, REP associates first with unprenylated Rab, which is then prenylated by RGGT. In the alternative pathway, REP associates first with RGGT; this complex then binds and prenylates Rab proteins. In the present paper we show that REP mutants defective in RGGT binding (REP1 F282L and REP1 F282L/V290F) are unable to compete with wild-type REP in the prenylation reaction in vitro. When over-expressed in cells, REP wild-type and mutants are unable to form stable cytosolic complexes with endogenous unprenylated Rabs. These results suggest that the alternative pathway may predominate in vivo. We also extend previous suggestions that GGPP (geranylgeranyl pyrophosphate) acts as an allosteric regulator of the prenylation reaction. We observed that REP-RGGT complexes are formed in vivo and are unstable in the absence of intracellular GGPP. RGGT increases the ability of REP to extract endogenous prenylated Rabs from membranes in vitro by stabilizing a soluble REP-RGGT-Rab-GG (geranylgeranylated Rab) complex. This effect is regulated by GGPP, which promotes the dissociation of RGGT and REP-Rab-GG to allow delivery of prenylated Rabs to membranes.