SOX transcription factors are essential for embryonic development and play critical roles in cell fate determination, differentiation and proliferation. We previously reported that the SOX2 protein is expressed in normal gastric mucosae but downregulated in some human gastric carcinomas. To clarify the roles of SOX2 in gastric carcinogenesis, we carried out functional characterisation of SOX2 in gastric epithelial cell lines. Exogenous expression of SOX2 suppressed cell proliferation in gastric epithelial cell lines. Flow cytometry analysis revealed that SOX2-overexpressing cells exhibited cell-cycle arrest and apoptosis. We found that SOX2-mediated cell-cycle arrest was associated with decreased levels of cyclin D1 and phosphorylated Rb, and an increased p27(Kip1) level. These cells exhibited further characteristics of apoptosis, such as DNA laddering and caspase-3 activation. SOX2 hypermethylation signals were observed in some cultured and primary gastric cancers with no or weak SOX2 expression. Among the 52 patients with advanced gastric cancers, those with cancers showing SOX2 methylation had a significantly shorter survival time than those without this methylation (P=0.0062). Hence, SOX2 plays important roles in growth inhibition through cell-cycle arrest and apoptosis in gastric epithelial cells, and the loss of SOX2 expression may be related to gastric carcinogenesis and poor prognosis.