Cell cycle progression is a tightly controlled fundamental process in living cells, with any defects being closely linked to various abnormalities. The tumor suppressor p53/p21 axis is a core pathway controlling cell cycle progression; however, its regulatory mechanism has not been fully elucidated. In an effort to unravel this crucial network, we screened a short hairpin RNA expression vector library and identified unspliced X-box binding protein 1 (XBP1-u) as a novel and critical regulator of the p53/p21 axis. Specifically, XBP1-u negatively regulates the p53/p21 axis by enhancing p53 ubiquitination, which in turn down-regulates p21 expression. We show that XBP1-u suppression induces G(0)-G(1) phase arrest and represses cell proliferation. We further report that the carboxyl terminus of XBP1-u, which differs from that of its spliced form (XBP1-s) due to a codon shift, binds and stabilizes mouse double minute homolog 2 (MDM2) protein, a negative regulator of p53, by inhibiting its self-ubiquitination. Concomitantly, XBP-u overexpression enhances tumorigenesis by positively regulatingMDM2. Together, our findings suggest that XBP1-u functions far beyond beingmerely a precursor of XBP1-s and, instead, is involved in fundamental biological processes. Furthermore, this study provides new insights regarding the regulation of the MDM2/p53/p21 axis.