Mutations in the Nf2 tumor suppressor gene lead to tumor formation in humans and mice and cellular overproliferation phenotypes in Drosophila. The Nf2 encoded protein, merlin, shares close sequence similarity in its amino terminus to members of the band 4.1 family of membrane-cytoskeletal linkers. Similarities between merlin and this family suggest a role for merlin in regulating cytoskeletal function. However, the mechanism of the tumor suppressing activity of merlin is not yet understood. Mutational analysis of Nf2 in flies has led to the identification of a dominant-negative allele, which harbors mutations in the amino terminus of the protein. Here, we report that expression of a murine analog of this amino-terminal mutant of Nf2 leads to complete transformation of NIH3T3 fibroblasts in culture. Cells that express this Nf2 mutant allele display disruptions of the actin cytoskeleton, lack of contact inhibition of growth, and anchorage-independent growth. Finally, fibroblasts that express this mutant Nf2 allele form tumors when injected into nude mice.