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Purpose: Early activation of cytosolic NADPH oxidase-2 (Nox2) in diabetes increases retinal ROS production, damaging their mitochondria. The assembly of Nox2 holoenzyme requires activation of a small molecular weight G protein Rac1. Rac1 activation is regulated by guanine exchange factors and guanine nucleotide-dissociation inhibitors, and post-translational modifications assist in its association with exchange factors and dissociation inhibitors. The goal of this study is to investigate the mechanisms of Rac1 activation in the development of diabetic retinopathy., Methods: The levels of the dissociation inhibitor, prenylating enzyme (farnesyltransferase, FNTA), and exchange factor Vav2 were quantified in human retinal endothelial cells, incubated in normal or high glucose for 96 h. The roles of prenylation and Vav2 in Rac1-Nox2-ROS mitochondrial damage were confirmed in FNTA-siRNA-transfected cells and using the Vav2 inhibitor EHop, respectively. Retinal histopathology and functional changes associated with diabetic retinopathy were analyzed in diabetic mice receiving EHop for 6 months. Key parameters of Rac1 activation were confirmed in the retinal microvasculature from human donors with diabetic retinopathy., Results: In HRECs, glucose increased FNTA and Vav2 and decreased the dissociation inhibitor. FNTA-siRNA and EHop inhibited glucose-induced activation of Rac1-Nox2-ROS signaling. In diabetic mice, EHop ameliorated the development of retinopathy and functional/structural abnormalities and attenuated Rac1-Nox2-mitochondrial damage. Similar alterations in Rac1 regulators were observed in retinal microvasculature from human donors with diabetic retinopathy. In diabetes, Rac1 prenylation and its interactions with Vav2 contribute to Nox2-ROS-mitochondrial damage, and the pharmacological inhibitors to attenuate Rac1 interactions with its regulators could have the potential to halt/inhibit the development of diabetic retinopathy. Graphical Abstract Activation of prenylating enzyme farnesyltransferase (FNTA) in diabetes, prenylates Rac1. The binding of Rac1 with guanine nucleotide-dissociation inhibitor (GDI) is decreased, but its association with the guanine exchange factor, Vav2, is increased, resulting in Rac1 activation. Active Rac1 helps in the assembly of Nox2 holoenzyme, and Nox2 activation increases cytosolic ROS production, damaging the mitochondria. Damaged mitochondria accelerate capillary cell apoptosis, and ultimately, results in the development of diabetic retinopathy.