Epithelial cell-cell interactions require localized adhesive interactions between E-cadherin on opposing membranes, and the activation of downstream signaling pathways that affect membrane and actin dynamics. However, it is not known whether E-cadherin engagement and activation of these signaling pathways are locally coordinated, or whether signaling is sustained or locally down-regulated like other receptor-mediated pathways. To obtain high spatiotemporal resolution of immediate-early signaling events upon E-cadherin engagement we used laser tweezers to place beads coated with functional E-cadherin extracellular domain on cells. We show that cellular E-cadherin accumulated rapidly around beads, reaching a sustained plateau level in 1-3 minutes. Phosphoinositides and Rac1 co-accumulated with E-cadherin, reached peak levels with E-cadherin but then rapidly dispersed. Both E-cadherin and Rac1 accumulated independently of Rac1 GTP binding/hydrolysis, but these activities were required for Rac1 dispersal. E-cadherin accumulation was dependent on membrane dynamics and actin polymerization, but actin did not stably co-accumulate with E-cadherin; mathematical modeling showed that diffusion-mediated trapping could account for the initial E-cadherin accumulation. We propose that initial E-cadherin accumulation requires active membrane dynamics and involves diffusion-mediated trapping at contact sites; to propagate further contacts, PI-3 kinase and Rac1 are transiently activated by E-cadherin engagement and initiate a new round of membrane dynamics, but they are subsequently suppressed at that site to allow maintenance of weak E-cadherin mediated adhesion.