ErbB2 and ErbB3, members of the EGF receptor/ErbB family, form a heterodimer upon binding of a ligand, inducing the activation of Rac small G protein and Akt protein kinase for cell movement and survival, respectively. The enhanced ErbB3/ErbB2 signaling causes tumorigenesis, invasion, and metastasis. We found here that the ErbB3/ErbB2 signaling is regulated by immunoglobulin-like Necl-2, which is down-regulated in various cancer cells and serves as a tumor suppressor. The extracellular region of ErbB3, but not ErbB2, interacted in cis with that of Necl-2. This interaction reduced the ligand-induced, ErbB2-catalyzed tyrosine phosphorylation of ErbB3 and inhibited the consequent ErbB3-mediated activation of Rac and Akt, resulting in the inhibition of cancer cell movement and survival. These inhibitory effects of Necl-2 were mediated by the protein-tyrosine phosphatase PTPN13 which interacted with the cytoplasmic tail of Necl-2. We describe here this novel mechanism for silencing of the ErbB3/ErbB2 signaling by Necl-2.