Autosomal dominant polycystic kidney disease is characterized by cyst formation in the kidney and other organs and results from mutations of PKD1 or PKD2. Previous studies suggest that their gene products have an important role in growth regulation. We now show that expression of polycystin-1 activates the JAK-STAT pathway, thereby upregulating p21^waf1 and inducing cell cycle arrest in G0/G1. This process requires polycystin-2, a channel protein, as an essential cofactor. Mutations that disrupt polycystin-1/2 binding prevent activation of the pathway. Mouse embryos lacking Pkd1 have defective STAT1 phosphorylation and p21^waf1 induction. These results suggest that one function of the polycystin-1/2 complex is to regulate the JAK/STAT pathway and explain how mutations of either gene can result in dysregulated growth.