Mutation or loss of expression of merlin is responsible for neurofibromatosis type 2 (NF2), which is characterized by the development of schwannomas and other tumors of the nervous system. Like the ERM (ezrin-radixin-moesin) proteins, merlin interacts with CD44, a cell-surface receptor for hyaluronan (HA) that promotes tumorigenesis. However, the relationship between merlin and CD44 and the mechanism by which merlin exerts its tumor-suppressor function have not been elucidated. In the present study, we show that increased expression of wild-type merlin in Tr6BC1 schwannoma cells inhibits HA binding to CD44. Furthermore, we demonstrate that the residues required for this inhibitory effect and the interaction between CD44 and merlin lie within the first 50 amino acids of merlin. Overexpression of merlin inhibited subcutaneous growth of Tr6BC1 cells in immunocompromised Rag1 mice. In contrast, knocking down expression of endogenous merlin promoted tumor cell growth, as did overexpression of a merlin deletion mutant (merlinDel-1) that lacks the first 50 amino acids but not of other NH(2)-terminal deletion mutants. Together, our results demonstrate that inhibition of the CD44-HA interaction contributes to the tumor-suppressor function of merlin, and they suggest that merlin inhibits tumor growth, at least in part, by negatively regulating CD44 function.