The neurofibromatosis type 2 (NF2) tumor-suppressor protein Merlin is a member of the ERM family of proteins that links the cytoskeleton to the plasma membrane. In humans, mutations in the NF2 gene cause neurofibromatosis type-2 (NF2), a cancer syndrome characterized by the development of tumors of the nervous system. Previous reports have suggested that the subcellular distribution of Merlin is critical to its function, and that several NF2 mutants that lack tumor-suppressor activity present improper localization. Here we used a Drosophila cell culture model to study the distribution and mechanism of intracellular transport of Merlin and its mutants. We found that Drosophila Merlin formed cytoplasmic particles that move bidirectionally along microtubules. A single NF2-causing amino acid substitution in the FERM domain dramatically inhibited Merlin particle movement. Surprisingly, the presence of this immotile Merlin mutant also inhibited trafficking of the WT protein. Analysis of the movement of WT protein using RNAi and pull-downs showed that Merlin particles are associated with and moved by microtubule motors (kinesin-1 and cytoplasmic dynein), and that binding of motors and movement is regulated by Merlin phosphorylation. Inhibition of Merlin transport by expression of the dominant-negative mutant or depletion of kinesin-1 results in increased nuclear accumulation of the transcriptional coactivator Yorkie. These results demonstrate the requirement of microtubule-dependent transport for Merlin function.M erlin is a tumor-suppressor protein of the ERM family encoded by the NF2 gene that controls cell growth and contact-dependent inhibition of proliferation. Mutations in the NF2 gene are the underlying cause of neurofibromatosis type 2 (NF2), a familial cancer syndrome characterized by the development of sporadic tumors of the nervous system (1-3). To gain insight into Merlin's cellular functions, we have studied a Drosophila Merlin homolog and its disease-causing mutant. Drosophila Merlin shares the same fundamental domain composition as its mammalian counterpart, and several groups have obtained comparable results using the mammalian and Drosophila proteins (4).Merlin functions by organizing membrane domains that connect signals coming from the extracellular environment to cytoplasmic factors to ultimately regulate cellular proliferation (5-7). Consistent with this role, Merlin is concentrated in actin-rich structures, such as membrane ruffles in isolated cells and at cell-cell contacts in dense cultures (8-10). Merlin also exhibits a punctate distribution that has been attributed to localization to intracellular vesicles (7,11,12). Merlin has a dynamic distribution in Drosophila S2 cells. Studies have shown that the protein is initially localized along the cell cortical region and is then internalized in the form of particles (12, 13).Merlin mislocalization is associated with abnormal tissue growth and proliferation (12, 13). Many NF2 mutations of Merlin are abnormally distributed in the cells and lack tumor...