Wound healing in epithelia requires coordinated cell migration and proliferation regulated by signaling mechanisms that are poorly understood. Here we show that epithelial cells expressing constitutively active or kinase-dead mutants of the Rac/Cdc42 effector Pak1 fail to undergo growth arrest upon wound closure. Strikingly, this phenotype is only observed when the Pak1 kinase mutants are expressed in cells possessing a free lateral surface, i.e. one that is not engaged in contact with neighboring cells. The Pak1 kinase mutants perturb contact inhibition by a mechanism that depends on the Pak-interacting Rac-GEF PIX. In control cells, endogenous activated Pak and PIX translocate from focal complexes to cell-cell contacts during wound closure. This process is abrogated in cells expressing Pak1 kinase mutants. In contrast, Pak1 mutants rendered defective in PIX binding do not impede translocation of activated Pak and PIX, and exhibit normal wound healing. Thus, recruitment of activated Pak and PIX to cell-cell contacts is pivotal to transduction of growth-inhibitory signals from neighboring cells in epithelial wound healing.