Autosomal-dominant polycystic kidney disease (ADPKD) is the most common hereditary kidney disease and is characterized by progressive cyst formation and ultimate loss of renal function. Increased cell proliferation is a key feature of the disease. Here, we show that the ADPKD protein polycystin-2 (PC2) regulates the cell cycle through direct interaction with Id2, a member of the helix-loop-helix (HLH) protein family that is known to regulate cell proliferation and differentiation. Id2 expression suppresses the induction of a cyclin-dependent kinase inhibitor, p21, by either polycystin-1 (PC1) or PC2. The PC2-Id2 interaction is regulated by PC1-dependent phosphorylation of PC2. Enhanced Id2 nuclear localization is seen in human and mouse cystic kidneys. Inhibition of Id2 expression by RNA interference corrects the hyperproliferative phenotype of PC1 mutant cells. We propose that Id2 has a crucial role in cell-cycle regulation that is mediated by PC1 and PC2.