Caspase-2 is an atypical caspase that regulates apoptosis, cell cycle arrest and genome maintenance, although the mechanisms are not well understood. Caspase-2 has also been implicated in chemotherapy response in lung cancer, but this function has not been addressed in vivo. Here we show that Caspase-2 functions as a tumor suppressor in Kras-driven lung cancer in vivo. Loss of Caspase-2 leads to enhanced tumor proliferation and progression. Despite being more histologically advanced, Caspase-2-deficient tumors are sensitive to chemotherapy and exhibit a significant reduction in tumor volume following repeated treatment. However, Caspase-2-deficient tumors rapidly rebound from chemotherapy with enhanced proliferation, ultimately hindering long-term therapeutic benefit. In response to DNA damage, Caspase-2 cleaves and inhibits Mdm2 and thereby promotes the stability of the tumor-suppressor p53. Caspase-2 expression levels are significantly reduced in human lung tumors with wild-type p53, in agreement with the model whereby Caspase-2 functions through Mdm2/p53 regulation. Consistently, p53 target genes including p21, cyclin G1 and Msh2 are reduced in Caspase-2-deficient tumors. Finally, we show that phosphorylation of p53-induced protein with a death domain 1 leads to Caspase-2-mediated cleavage of Mdm2, directly impacting p53 levels, activity and chemotherapy response. Together, these studies elucidate a Caspase-2-p53 signaling network that impacts lung tumorigenesis and chemotherapy response in vivo.