The conserved Hippo signaling pathway regulates organ size in Drosophila and mammals. While a core kinase cascade leading from the protein kinase Hippo (Hpo) (Mst1 and Mst2 in mammals) to the transcription coactivator Yorkie (Yki) (YAP in mammals) has been established, upstream regulators of the Hippo kinase cascade are less well defined, especially in mammals. Using conditional knockout mice, we demonstrate that the Merlin/NF2 tumor suppressor and the YAP oncoprotein function antagonistically to regulate liver development. While inactivation of Yap led to loss of hepatocytes and biliary epithelial cells, inactivation of Nf2 led to hepatocellular carcinoma and bile duct hamartoma. Strikingly, the Nf2-deficient phenotypes in multiple tissues were largely suppressed by heterozygous deletion of Yap, suggesting that YAP is a major effector of Merlin/NF2 in growth regulation. Our studies link Merlin/NF2 to mammalian Hippo signaling and implicate YAP activation as a mediator of pathologies relevant to Neurofibromatosis 2.