TFPI-2 has recently been recognized as a tumor suppressor, which not only plays a fundamental role in modulation of ECM integrity, but also involves the regulation of many oncogenes. In this study, we investigated the potential mechanism of TFPI-2 in the suppression of breast cancer growth and invasion. We showed that, with either over-expression of TFPI-2 or after treatment with exogenous rTFPI-2, breast cancer cells exhibited reduced proliferation and invasion. We demonstrated that in addition to being secreted, TFPI-2 was also distributed throughout the cytoplasm and nucleus. Nuclear localization of TFPI-2 contributed to inhibition of MMP-2 mRNA expression, which could be reversed after the nuclear localization signal was deleted. In the nucleus, interaction of TFPI-2 with Ap-2α attenuated the binding of AP-2α to the MMP-2 promoter, therefore reducing the transcriptional activity of the gene. Our results suggest that one of the mechanisms by which TFPI-2 inhibits breast cancer cell invasion could be via the regulation of MMP-2 gene transcription.