p120 catenin is a major regulator of cadherin stability at cell-cell contacts and a modulator of Rho GTPase activities. In C2C12 myoblasts, N-cadherin is stabilized at cell contacts through its association with cholesterol-rich membrane domains or lipid rafts (LR) and acts as an adhesion-activated receptor that activates RhoA, an event required for myogenesis induction. Here, we report that association of p120 catenin with N-cadherin at cell contacts occurs specifically in LR. We demonstrate that interaction of p120 catenin with N-cadherin is required for N-cadherin association with LR and for its stabilization at cell contacts. LR disruption inhibits myogenesis induction and N-cadherin-dependent RhoA activation as does the perturbation of the N-cadherin-p120 catenin complex after p120 catenin knockdown. Finally, we observe an N-cadherin-dependent accumulation of RhoA at phosphatidylinositol 4,5-bisphosphate-enriched cell contacts which is lost after LR disruption. Thus, a functional N-cadherin-catenin complex occurs in cholesterol-rich membrane microdomains which allows the recruitment of RhoA and the regulation of its activity during myogenesis induction.