H2O2 is a widespread molecule in many biological systems. It is created enzymatically in living cells during various oxidation reactions and by leakage of electrons from the electron transport chains. Depending on the concentration H2O2 can induce cell protective responses, programmed cell death, or necrosis. Here we provide evidence that H2O2 may function as a developmental signal in the differentiation of secondary walls in cotton (Gossypium hirsutum) fibers. Three lines of evidence support this conclusion: (a) the period of H2O2 generation coincided with the onset of secondary wall deposition, (b) inhibition of H2O2 production or scavenging the available H2O2 from the system prevented the wall differentiation process, and (c) exogenous addition of H2O2 prematurely promoted secondary wall formation in young fibers. Furthermore, we provide support for the concept that H2O2 generation could be mediated by the expression of the small GTPase Rac, the accumulation of which was shown previously to be strongly induced during the onset of secondary wall differentiation. In support of Rac's role in the activation of NADPH oxidase and the generation of reactive oxygen species, we transformed soybean (Glycine max) and Arabidopsis cells with mutated Rac genes. Transformation with a dominantly activated cotton Rac13 gene resulted in constitutively higher levels of H2O2, whereas transformation with the antisense and especially with dominant-negative Rac constructs decreased the levels of H2O2.