Polycomb (Pc) is involved in the stable and heritable repression of homeotic gene activity during Drosophila development. Here, we report the identification of a novel human Pc homolog, hPc2. This gene is more closely related to a Xenopus Pc homolog, XPc, than to a previously described human Pc homolog, CBX2 (hPc1). However, the hPc2 and CBX2/hPc1 proteins colocalize in interphase nuclei of human U-2 OS osteosarcoma cells, suggesting that the proteins are part of a common protein complex. To study the functions of the novel human Pc homolog, we generated a mutant protein, delta hPc2, which lacks an evolutionarily conserved C-terminal domain. This C-terminal domain is important for hPc2 function, since the delta hPc2 mutant protein which lacks the C-terminal domain is unable to repress gene activity. Expression of the delta hPc2 protein, but not of the wild-type hPc2 protein, results in cellular transformation of mammalian cell lines as judged by phenotypic changes, altered marker gene expression, and anchorage-independent growth. Specifically in delta hPc2-transformed cells, the expression of the c-myc proto-oncogene is strongly enhanced and serum deprivation results in apoptosis. In contrast, overexpression of the wild-type hPc2 protein results in decreased c-myc expression. Our data suggest that hPc2 is a repressor of proto-oncogene activity and that interference with hPc2 function can lead to derepression of proto-oncogene transcription and subsequently to cellular transformation.