The Kruppel-like factor 5 (KLF5) transcription factor is highly expressed in high-grade and basal-like breast cancers. However, the mechanism by which KLF5 promotes cell migration and invasion is still not completely understood. In this study, we demonstrate that TNFAIP2, a tumor necrosis factor-α (TNFα)-induced gene, is a direct KLF5 target gene. The expression of TNFAIP2 is highly correlated with the expression of KLF5 in breast cancers. The manipulation of KLF5 expression positively alters TNFAIP2 expression levels. KLF5 directly binds to the TNFAIP2 gene promoter and activates its transcription. Functionally, KLF5 promotes cancer cell proliferation, migration and invasion in part through TNFAIP2. TNFAIP2 interacts with the two small GTPases Rac1 and Cdc42, thereby increasing their activities to change actin cytoskeleton and cell morphology. These findings collectively suggest that TNFAIP2 is a direct KLF5 target gene, and both KLF5 and TNFAIP2 promote breast cancer cell proliferation, migration and invasion through Rac1 and Cdc42.