Histone deacetylase 2 (HDAC2) is crucial for embryonic development, affects cytokine signaling relevant for immune responses and is often significantly overexpressed in solid tumors; but little is known about its role in human hepatocellular carcinoma (HCC). In this study, we showed that targeted-disruption of HDAC2 resulted in reduction of both tumor cell growth and de novo DNA synthesis in Hep3B cells. We then demonstrated that HDAC2 regulated cell cycle and that disruption of HDAC2 caused G1/S arrest in cell cycle. In G1/S transition, targeted-disruption of HDAC2 selectively induced the expression of p16(INK4A) and p21(WAF1/Cip1), and simultaneously suppressed the expression of cyclin D1, CDK4 and CDK2. Consequently, HDAC2 inhibition led to the down-regulation of E2F/DP1 target genes through a reduction in phosphorylation status of pRb protein. In addition, sustained suppression of HDAC2 attenuated in vitro colony formation and in vivo tumor growth in a mouse xenograft model. Further, we found that HDAC2 suppresses p21(WAF1/Cip1) transcriptional activity via Sp1-binding site enriched proximal region of p21(WAF1/Cip1) promoter. In conclusion, we suggest that the aberrant regulation of HDAC2 may play a pivotal role in the development of HCC through its regulation of cell cycle components at the transcription level providing HDAC2 as a relevant target in liver cancer therapy.