The paired box 5 (PAX5) is a member of PAX transcription factors family involved in the regulation of embryonic development. However, the role of PAX5 in carcinogenesis is largely unclear. We identified that PAX5 is involved in human cancer by methylation-sensitive representational difference analysis. We examined the biological functions and related molecular mechanisms of PAX5 in hepatocellular carcinoma (HCC). Promoter methylation of PAX5 was evaluated by methylation-specific polymerase chain reaction (PCR) and bisulfite genomic sequencing (BGS). The functions of ectopic PAX5 expression were determined by viability assay, colony formation, and cell cycle analyses, along with in vivo tumorigenicity assays. The PAX5 target signal pathway was identified by promoter luciferase assay, chromosome immunoprecipitation (ChIP), and pathway PCR array. PAX5 is expressed in normal human liver tissue, but silenced or down-regulated in 83% (10/12) of HCC cell lines. The mean expression level of PAX5 was significantly lower in primary HCCs as compared to their adjacent normal tissues (P < 0.0001). The promoter methylation contributes to the inactivation of PAX5. Restoring PAX5 expression in silenced HCC cell lines suppressed cell proliferation, induced apoptosis in vitro, and inhibited tumor growth in nude mice (P < 0.0001). The pathway luciferase reporter assay indicated that PAX5 activated p53 and p21 signaling. ChIP analysis demonstrated that PAX5 directly bound to the p53 promoter. The antitumorigenic function of PAX5 was at least up-regulated by p53 and its downstream targets including tumor necrosis factor, Fas ligand, leucine-rich repeats, and death domain-containing, poly(rC) binding protein 4, p21, and growth arrest and DNA-damage-inducible alpha. CONCLUSION: PAX5 is frequently inactivated by promoter methylation in HCC. PAX5 appears to be a functional tumor suppressor involved in liver carcinogenesis through direct regulation of the p53 signaling pathway.