The T-box transcription factor TBX3 has been implicated in the patterning and differentiation of a number of tissues during embryonic development, and is overexpressed in a variety of cancers; however, the precise function of TBX3 in papillary thyroid carcinoma (PTC) development remains to be determined. In the current study, we report downregulation of TBX3 in PTC cells delays the G1/S-phase transition, decreases cell growth in vitro, and inhibits tumor formation in vivo. We identified p57KIP2 as a novel downstream target that serves as the key mediator of TBX3's control over PTC cell proliferation. Reduced expression of TBX3 resulted in increased p57KIP2 level, while knockdown of p57KIP2 rescues the cell-cycle arrest phenotype. In clinical PTC specimens, the expression of TBX3 is markedly upregulated and significantly correlated with advanced tumor grade, but negatively correlated with the expression of p57KIP2. Mechanism investigation revealed that TBX3 directly binds to the CDKN1C gene promoter region, the coding gene of p57KIP2, and represses its transcription. Furthermore, recruitment of main components of the PRC2 complex as well as class I histone deacetylases, HDAC1 and HDAC2, is required for TBX3 to fulfill the transcriptional repression function. Our findings illustrate the previously unknown function and mechanism in cell proliferation regulation by the TBX3-p57KIP2 axis and provide evidence for the contribution of the PRC2 complex and HDAC1/2. Targeting of this pathway may present a novel and molecular defined strategy against PTC development.