Alternative pre-mRNA splicing yields functionally distinct splice variants in regulating normal cell differentiation as well as cancer development. The putative tumor suppressor gene GT198 (PSMC3IP), encoding a protein also known as TBPIP and Hop2, has been shown to regulate steroid hormone receptor-mediated transcription and to stimulate homologous recombination in DNA repair. Here, we have identified 6 distinct GT198 splice variant transcripts generated by alternative promoter usage or alternative splicing. Various splice variant transcripts preserve a common open reading frame, which encodes the DNA binding domain of GT198. The splice variants act as dominant negatives to counteract wild-type GT198 activity in transcription and to abolish Rad51 foci formation during radiation-induced DNA damage. In fallopian tube cancer, we have identified 44 point mutations in GT198 clustered in 2 mutation hotspot sequences. The mutation hotspots coincide with the regulatory sequences responsible for alternative splicing, strongly supporting that imbalanced alternative splicing is a selected consequence in cancer. In addition, splice variant-associated cytoplasmic expression is found in tumors carrying germline or somatic GT198 mutations. An altered alternative splicing pattern with increased variants is also present in lymphoblastoid cells derived from familial breast cancer patients carrying GT198 germline mutations. Furthermore, GT198 and its variant are reciprocally expressed during mouse stem cell differentiation. The constitutive expression of the GT198 variant but not the wild type induces tumor growth in nude mice. Our results collectively suggest that mutations in the GT198 gene deregulate alternative splicing. Defective alternative splicing promotes antagonizing variants and in turn induces a loss of the wild type in tumorigenesis. The study highlights the role of alternative splicing in tumor suppressor gene inactivation.