Autosomal dominant polycystic kidney disease (ADPKD) is caused by heterozygous mutations in either PKD1 or PKD2, genes that encode polycystin-1 and polycystin-2, respectively. We show here that tumor necrosis factor-alpha (TNF-alpha), an inflammatory cytokine present in the cystic fluid of humans with ADPKD, disrupts the localization of polycystin-2 to the plasma membrane and primary cilia through a scaffold protein, FIP2, which is induced by TNF-alpha. Treatment of mouse embryonic kidney organ cultures with TNF-alpha resulted in formation of cysts, and this effect was exacerbated in the Pkd2(+/-) kidneys. TNF-alpha also stimulated cyst formation in vivo in Pkd2(+/-) mice. In contrast, treatment of Pkd2(+/-) mice with the TNF-alpha inhibitor etanercept prevented cyst formation. These data reveal a pathway connecting TNF-alpha signaling, polycystins and cystogenesis, the activation of which may reduce functional polycystin-2 below a critical threshold, precipitating the ADPKD cellular phenotype.