The tumor suppressors Lats1 and Lats2 are mediators of the Hippo pathway that regulates tissue growth and proliferation. Their N-terminal non-kinase regions are distinct except for Lats conserved domains 1 and 2 (LCD1 and LCD2), which may be important for Lats1/2-specific functions. Lats1 knockout mice were generated by disrupting the N-terminal region containing LCD1 (Lats1(ΔN/ΔN)). Some Lats1(ΔN/ΔN) mice were born safely and grew normally. However, mouse embryonic fibroblasts (MEFs) from Lats1(ΔN/ΔN) mice displayed mitotic defects, centrosomal overduplication, chromosomal misalignment, multipolar spindle formation, chromosomal bridging and cytokinesis failure. They also showed anchorage-independent growth and continued cell cycles and cell growth, bypassing cell-cell contact inhibition similar to tumor cells. Lats1(ΔN/ΔN) MEFs produced tumors in nude mice after subcutaneous injection, although the tumor growth rate was much slower than that of ordinary cancer cells. Yap, a key transcriptional coactivator of the Hippo pathway, was overexpressed and stably retained in Lats1(ΔN/ΔN) MEFs in a cell density independent manner, and Lats2 mRNA expression was downregulated. In conclusion, N-terminally truncated Lats1 induced Lats2 downregulation and Yap protein accumulation, leading to chromosomal instability and tumorigenesis.