With the floating exchange rate regime in Kenya, it was suspected at the beginning of this study that the exchange rate affects the stock market through the monetary policy channels. Fluctuations in exchange rate influence stability of prices, performance of organizations and stability of national economies. The stock market and forex market play crucial roles in economic development of the country. This study therefore sets out to investigate the relationship between the forex and Stock market in Kenya in order to determine if there is a significant relationship between the exchange rate and performance of stock, to investigate the causal linkage between the foreign exchange rate and stock index and to determine if there is a long run or short run relationship between the forex and stock market. The study analyzed the relationship between the exchange rate between Kenya Shilling and the Euro, dollar, Sterling pound and the NSE 20-share index monthly closing averages. The study used monthly time series data for a six year period between January 2006 and December 2012. Explanatory research survey was used to explore the relationship between the variables. Empirical analysis employed the Johansen Cointegration test to determine the long run relationship between the variables, Granger causality test to determine any causal relationship between the stock returns and forex rate and VAR model to determine the response of stock returns to a shock on the forex rates. Empirical results show that there is no cointegrating relationship between the stock returns and the exchange rates, meaning that there is no long term co-movement between the two variables and non of the variable is predictable on the basis of past values of the other variable. Results of Granger causality test indicate that there is no two way causal linkage between the two variables. Lastly, results show a weak relationship between the stock market and the forex market as indicated by the VAR model. From the impulse response analysis, a change in the forex rate is neutralized after three months. The study makes recommendations to policy makers and market participants, that one cannot predict the stock market on basis of past values of forex markets hence no chance of profitable speculation in the stock market or forex market.