Deleted in liver cancer 1 (DLC1) is a recently identified tumor suppressor gene frequently underexpressed in hepatocellular carcinoma (HCC). DLC1 encodes a Rho GTPase-activating protein domain that exhibits growth-suppressive activity in HCC cell lines. Our recent finding has revealed that inhibition of Rho-mediated actin stress fiber formation by DLC1 is associated with its growth inhibitory activity. In the present study, we identified tensin2 as the novel binding partner of DLC1. Tensin2 belongs to a new family of focal adhesion proteins that play key roles in cytoskeleton organization and signal transduction. Dysregulation of tensin proteins has previously been implicated in human cancers. Tensin2 is highly expressed in human liver. Introduction of tensin2 into HCC cell lines with low expression of tensin2 caused significant growth inhibition and induction of apoptosis. Tensin2 directly interacted with DLC1 in vitro and in vivo. Both proteins localized to punctate structures in the cytoplasm. Sequence analysis of DLC1 and tensin2 identified caveolin-1 binding motif in both proteins. In vivo immunoprecipitation study confirmed that both proteins indeed interacted with endogenous caveolin-1, which is the major structural component of caveolae. Our findings presented here suggest a new model for the action of DLC1 in hepatocytes, whereby DLC1-tensin2 complex interacts with Rho GTPases in caveolae to effect cytoskeletal reorganization.