Individuals with the inherited cancer predisposition syndrome neurofibromatosis 2 (NF2) develop several central nervous system (CNS) malignancies, including glial cell neoplasms (ependymomas). Recent studies have suggested that the NF2 protein, merlin (or schwannomin), may regulate receptor tyrosine kinase signaling, intracellular mitogenic growth control pathways, or adherens junction organization in non-nervous-system cell types. For this report, we used glial fibrillary acidic protein conditional knockout mice and derivative glia to determine how merlin regulates CNS glial cell proliferation. We show that the loss of merlin in glial cells results in increased proliferation in vitro and in vivo. Merlin regulation of glial cell growth reflects deregulated Src activity, such that pharmacologic or genetic inhibition of Src activation reduces Nf2-/- glial cell growth to wild-type levels. We further show that Src regulates Nf2-/- glial cell growth by sequentially regulating FAK and paxillin phosphorylation/activity. Next, we demonstrate that Src activation results from merlin regulation of ErbB2 activation and that genetic or pharmacologic ErbB2 inhibition reduces Nf2 -/- glial cell Src/Src effector activation and proliferation to wild-type levels. Lastly, we show that merlin competes with Src for direct binding to ErbB2 and present a novel molecular mechanism for merlin regulation of ErbB2-dependent Src signaling and growth control.