Autosomal dominant polycystic kidney disease (ADPKD) is characterized by the formation of multiple fluid-filled cysts that expand over time and destroy the renal architecture. Loss or mutation of polycystin-1 or polycystin-2, the respective proteins encoded by the ADPKD genes PKD1 and PKD2, is associated with most cases of ADPKD. Thus, the polycystin proteins likely play a role in cell proliferation and morphogenesis. Recent studies indicate that polycystin-1 is involved in these processes, but little is known about the role played by polycystin-2. To address this question, we created a number of related cell lines variable in their expression of polycystin-2. We show that the basal and epidermal growth factor-stimulated rate of cell proliferation is higher in cells that do not express polycystin-2 versus those that do, indicating that polycystin-2 acts as a negative regulator of cell growth. In addition, cells not expressing polycystin-2 exhibit significantly more branching morphogenesis and multicellular tubule formation under basal and hepatocyte growth factor-stimulated conditions than their polycystin-2-expressing counterparts, suggesting that polycystin-2 may also play an important role in the regulation of tubulogenesis. Cells expressing a channel mutant of polycystin-2 proliferated faster than those expressing the wild-type protein, but exhibited blunted tubule formation. Thus, the channel activity of polycystin-2 may be an important component of its regulatory machinery. Finally, we show that polycystin-2 regulation of cell proliferation appears to be dependent on its ability to prevent phosphorylated extracellular-related kinase from entering the nucleus. Our results indicate that polycystin-2 is necessary for the proper growth and differentiation of kidney epithelial cells and suggest a possible mechanism for the cyst formation seen in ADPKD2.