Current models imply that the FERM domain protein Merlin, encoded by the tumor suppressor NF2, inhibits mitogenic signaling at or near the plasma membrane. Here, we show that the closed, growth-inhibitory form of Merlin accumulates in the nucleus, binds to the E3 ubiquitin ligase CRL4^DCAF1, and suppresses its activity. Depletion of DCAF1 blocks the promitogenic effect of inactivation of Merlin. Conversely, enforced expression of a Merlin-insensitive mutant of DCAF1 counteracts the antimitogenic effect of Merlin. Re-expression of Merlin and silencing of DCAF1 implement a similar, tumor-suppressive program of gene expression. Tumor-derived mutations invariably disrupt Merlin's ability to interact with or inhibit CRL4^DCAF1. Finally, depletion of DCAF1 inhibits the hyperproliferation of Schwannoma cells from NF2 patients and suppresses the oncogenic potential of Merlin-deficient tumor cell lines. We propose that Merlin suppresses tumorigenesis by translocating to the nucleus to inhibit CRL4^DCAF1.