Exposure of normal and tumor-derived cells to TGFβ results in different outcomes, depending on the regulation of key targets. The CDK inhibitor p27^Kip1 is one of these TGFβ targets and is essential for the TGFβ-induced cell cycle arrest. TGFβ treatment inhibits p27^Kip1 degradation and induces its nuclear translocation, through mechanisms that are still unknown. Recent evidences suggest that SUMOylation, a post-translational modification able to modulate the stability and subcellular localization of target proteins, critically modifies members of the TGFβ signaling pathway. Here, we demonstrate that p27^Kip1 is SUMOylated in response to TGFβ treatment. Using different p27^Kip1 point mutants, we identified lysine 134 (K134) as the residue modified by small ubiquitin-like modifier 1 (SUMO1) in response to TGFβ treatment. TGFβ-induced K134 SUMOylation increased protein stability and nuclear localization of both endogenous and exogenously expressed p27^Kip1. We observed that SUMOylation regulated p27^Kip1 binding to CDK2, thereby governing its nuclear proteasomal degradation through the phosphorylation of threonine 187. Importantly, p27^Kip1 SUMOylation was necessary for proper cell cycle exit following TGFβ treatment. These data indicate that SUMOylation is a novel regulatory mechanism that modulates p27^Kip1 function in response to TGFβ stimulation. Given the involvement of TGFβ signaling in cancer cell proliferation and invasion, our data may shed light on an important aspect of this pathway during tumor progression.