Neurofibromatosis 2 (NF2) is a tumor predisposition syndrome in which affected individuals develop nervous system tumors at an increased frequency. The most common tumor in individuals with NF2 is the schwannoma, which is composed of neoplastic Schwann cells lacking NF2 gene expression. Moreover, inactivation of the NF2 gene is observed in nearly all sporadic schwannomas, suggesting that the NF2 gene is a critical growth regulator for Schwann cells. In an effort to gain insights into the function of the NF2 gene product, merlin or schwannomin, we performed a detailed functional analysis of eight naturally occurring non-conservative missense mutations in the NF2 gene. Using a regulatable expression system in rat schwannoma cells, we analyzed proliferation, actin cytoskeleton-mediated events and merlin folding. In this report, we demonstrate that mutations clustered in the predicted α-helical region did not impair the function of merlin whereas those in either the N- or C-terminus of the protein rendered merlin inactive as a negative growth regulator. These results suggest that the key functional domains of merlin lie within the highly conserved FERM domain and the unique C-terminus of the protein.