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In the present study, we have characterized several human thyroid cancer cell lines of different histotypes for their responsiveness to contact inhibition. We found that cells derived from differentiated carcinoma (TPC-1, WRO) arrest in G1 phase at confluence, whereas cells derived from anaplastic carcinoma (ARO, FRO and FB1) continue to grow after reaching confluence. Furthermore, we provide experimental evidence that the axis, E-cadherin/β-catenin/p27Kip1, represents an integral part of the regulatory mechanism that controls proliferation at a high cell density, whose disruption may play a key role in determining the clinical behaviour of thyroid cancer. This conclusion derives from the finding that: (i) the expression of p27Kip1 is enhanced at high cell density only in cells responsive to contact inhibition (TPC-1, WRO), but not in contact-inhibition resistant cells (ARO, FRO or FB1 cells); (ii) the increase in p27Kip1 also resulted in increased levels of p27Kip1 bound to cyclin E–Cdk2 complex, a reduction in cyclin E–Cdk2 activity and dephosphorylation of the retinoblastoma protein; (iii) antisense inhibition of p27Kip1 upregulation at high cell density in confluent-sensitive cells completely prevents the confluence-induced growth arrest; (iv) proper expression and/or membrane localization of E-cadherin is observed only in cells responsive to contact inhibition (TPC-1, NPA, WRO) but not in unresponsive cells (ARO, FRO or FB1); (v) disruption of E-cadherin-mediated cell–cell contacts at high cell density induced by an anti-E-cadherin neutralizing antibody, inhibits the induction of p27kip1 and restores proliferation in contact-inhibited cells; (vi) re-expression of E-cadherin into cells unresponsive to contact inhibition (ARO, FB1) induces a p27kip1 expression and growth arrest. In summary, our data indicate that the altered response to contact inhibition exhibited by thyroid anaplastic cancer cells is due to the failure to upregulate p27Kip1 in response to cell–cell interactions.