Tuberous sclerosis is an autosomal dominant disorder characterized by the development of aberrant growths in many tissues and organs. Linkage analysis revealed two disease-determining genes on chromosome 9 and chromosome 16. The tuberous sclerosis complex gene-2 (TSC2) on chromosome 16 encodes the tumor suppressor protein tuberin. We have shown earlier that loss of TSC2 is sufficient to induce quiescent cells to enter the cell cycle. Here we show that TSC2-negative fibroblasts exhibit a shortened G₁ phase. Although the expression of cyclin E, cyclin A, p21, or Cdc25A is unaffected, TSC2-negative cells express much lower amounts of the cyclin-dependent kinase (CDK) inhibitor p27 because of decreased protein stability. In TSC2 mutant cells the amount of p27 bound to CDK2 is diminished, accompanied with elevated kinase activity. Ectopic expression studies revealed that the aforementioned effects can be reverted by transfecting TSC2 in TSC2-negative cells. High ectopic levels of p27 have cell cycle inhibitory effects in TSC2-positive cells but not in TSC2-negative counterparts, although the latter still depend on CDK2 activity. Loss of TSC2 induces soft agar growth of fibroblasts, a process that cannot be inhibited by high levels of p27. Both phenotypes of TSC2-negative cells, their resistance to the activity of ectopic p27, and the instability of endogenous p27, could be explained by our observation that the nucleoprotein p27 is mislocated into the cytoplasm upon loss of TSC2. These findings provide insights into the molecular mechanism of how loss of TSC2 induces cell cycle entry and allow a better understanding of its tumor suppressor function.