Hepatocellular carcinoma (HCC) is a major malignancy in many parts of the world, especially in Asia and Africa. Loss of heterozygosity (LOH) on the long arm of chromosome 13 has been reported in HCC. In search of tumor suppressor genes in this region, here we have identified DLC2 (for deleted in liver cancer 2) at 13q12.3 encoding a novel Rho family GTPase-activating protein (GAP). DLC2 mRNA is ubiquitously expressed in normal tissues but was significantly underexpressed in 18% (8/45) of human HCCs. DLC2 is homologous to DLC1, a previously identified tumor suppressor gene at 8p22-p21.3 frequently deleted in HCC. DLC2 encodes a novel protein with a RhoGAP domain, a SAM (sterile alpha motif) domain related to p73/p63, and a lipid-binding StAR-related lipid transfer (START) domain. Biochemical analysis indicates that DLC2 protein has GAP activity specific for small GTPases RhoA and Cdc42. Expression of the GAP domain of DLC2 sufficiently inhibits the Rho-mediated formation of actin stress fibers. Introduction of human DLC2 into mouse fibroblasts suppresses Ras signaling and Ras-induced cellular transformation in a GAP-dependent manner. Taken together, our findings suggest a role for DLC2 in growth suppression and hepatocarcinogenesis.