Polycystic kidney diseases (PKD) are inherited as autosomal dominant (ADPKD) or autosomal recessive (ARPKD) traits and are characterized by progressive enlargement of renal cysts. Aberrant cell proliferation is a key feature in the progression of PKD. Cux1 is a homeobox gene that is related to Drosophila cut and is the murine homolog of human CDP (CCAAT Displacement Protein). Cux1 represses the cyclin kinase inhibitors p21 and p27, and transgenic mice ectopically expressing Cux1 develop renal hyperplasia. However, Cux1 transgenic mice do not develop PKD. Here, we show that a 246 amino acid deletion in Cux1 accelerates PKD progression in cpk mice. Cystic kidneys isolated from 10-day-old cpk/Cux1 double mutant mice were significantly larger than kidneys from 10-day-old cpk mice. Moreover, renal function was significantly reduced in the Cux1 mutant cpk mice, compared with cpk mice. The mutant Cux1 protein was ectopically expressed in cyst-lining cells, where expression corresponded to increased cell proliferation and apoptosis, and a decrease in expression of the cyclin kinase inhibitors p27 and p21. While the mutant Cux1 protein altered PKD progression, kidneys from mice carrying the mutant Cux1 protein alone were phenotypically normal, suggesting the Cux1 mutation modifies PKD progression in cpk mice. During cell cycle progression, Cux1 is proteolytically processed by a nuclear isoform of the cysteine protease cathepsin-L. Analysis of the deleted sequences reveals that a cathepsin-L processing site in Cux1 is deleted. Moreover, nuclear cathepsin-L is significantly reduced in both human ADPKD cells and in Pkd1 null kidneys, corresponding to increased levels of Cux1 protein in the cystic cells and kidneys. These results suggest a mechanism in which reduced Cux1 processing by cathepsin-L results in the accumulation of Cux1, downregulation of p21/p27, and increased cell proliferation in PKD.