The NF2 gene product, merlin/schwannomin, is a cytoskeleton organizer with unique growth-inhibiting activity in specific cell types. A narrow spectrum of tumors is associated with NF2 deficiency, mainly schwannomas and meningiomas, suggesting cell-specific mechanisms of growth control. We have investigated merlin function in mouse Schwann cells (SCs). We found that merlin regulates contact inhibition of proliferation by limiting the delivery of several growth factor receptors at the plasma membrane of primary SCs. Notably, upon cell-to-cell contact, merlin downregulates the membrane levels of ErbB2 and ErbB3, thus inhibiting the activity of the downstream mitogenic signaling pathways protein kinase B and mitogen-activated protein kinase. Consequently, loss of merlin activity is associated with elevated levels of ErbB receptors in primary SCs. We also observed accumulation of growth factor receptors such as ErbB2 and 3, insulin-like growth factor 1 receptor and platelet-derived growth factor receptor in peripheral nerves of Nf2-mutant mice and in human NF2 schwannomas, suggesting that this mechanism could play an important role in tumorigenesis.