CDK inhibitors are thought to prevent cell proliferation by negatively regulating cyclin-CDK complexes. We propose that the opposite is also true, that cyclin-CDK complexes in mammmalian cells can promote cell cycle progression by directly down-regulating CDK inhibitors. We show that expression of cyclin E-CDK2 in murine fibroblasts causes phosphorylation of the CDK inhibitor p27Kip1 on T187, and that cyclin E-CDK2 can directly phosphorylate p27 T187 in vitro. We further show that cyclin E-CDK2-dependent phosphorylation of p27 results in elimination of p27 from the cell, allowing cells to transit from G1 to S phase. Moreover, mutation of T187 in p27 to alanine creates a p27 protein that causes a G1 block resistant to cyclin E and whose level of expression is not modulated by cyclin E. A kinetic analysis of the interaction between p27 and cyclin E-CDK2 explains how p27 can be regulated by the same enzyme it targets for inhibition. We show that p27 interacts with cyclin E-CDK2 in at least two distinct ways: one resulting in p27 phosphorylation and release, the other in tight binding and cyclin E-CDK2 inhibition. The binding of ATP to the CDK governs which state predominates. At low ATP (< 50 microM) p27 is primarily a CDK inhibitor, but at ATP concentrations approaching physiological levels (> 1 mM) p27 is more likely to be a substrate. Thus, we have identified p27 as a biologically relevant cyclin E-CDK2 substrate, demonstrated the physiological consequences of p27 phosphorylation, and developed a kinetic model to explain how p27 can be both an inhibitor and a substrate of cyclin E-CDK2.