The small GTPase, ADP-ribosylation factor-like 3 (ARL3), has been proposed to participate in the transport of proteins in photoreceptor cells. Moreover, it has been implicated in the pathogenesis associated with X-linked retinitis pigmentosa (XLRP) resulting from mutations in the ARL3 GTPase activating protein, retinitis pigmentosa 2 (RP2). To determine the importance of ARL3 in rod photoreceptor cells, we generated transgenic mice expressing a dominant active form of ARL3 (ARL3-Q71L) under a rod-specific promoter. ARL3-Q71L animals exhibited extensive rod cell death after post-natal day 30 (PN30) and degeneration was complete by PN70. Prior to the onset of cell death, rod photoresponse was significantly reduced along with a robust decrease in rod phosphodiesterase 6 (PDE6) and G-protein receptor kinase-1 (GRK1) levels. Furthermore, assembled phosphodiesterase-6 (PDE6) subunits, rod transducin and G-protein receptor kinase-1 (GRK1) accumulated on large punctate structures within the inner segment in ARL3-Q71L retina. Defective trafficking of prenylated proteins is likely due to sequestration of prenyl binding protein δ (PrBPδ) by ARL3-Q71L as we demonstrate a specific interaction between these proteins in the retina. Unexpectedly, our studies also revealed a novel role for ARL3 in the migration of photoreceptor nuclei. In conclusion, this study identifies ARL3 as a key player in prenylated protein trafficking in rod photoreceptor cells and establishes the potential role for ARL3 dysregulation in the pathogenesis of RP2-related forms of XLRP.