Pseudogenes, especially those that are transcribed, may not be mere genomic fossils, but their biological significance remains unclear. Postulating that in the human genome, as in animal models, pseudogenes may function as gene regulators through generation of endo-siRNAs (esiRNAs), antisense RNAs or RNA decoys, we performed bioinformatic and subsequent experimental tests to explore esiRNA-mediated mechanisms of pseudogene involvement in oncogenesis. A genome-wide survey revealed a partial retrotranscript pseudogene ψPPM1K containing inverted repeats capable of folding into hairpin structures that can be processed into two esiRNAs; these esiRNAs potentially target many cellular genes, including NEK8. In 41 paired surgical specimens, we found significantly reduced expression of two predicted ψPPM1K-specific esiRNAs, and the cognate gene PPM1K, in hepatocellular carcinoma compared with matched non-tumour tissues, whereas the expression of target gene NEK8 was increased in tumours. Additionally, NEK8 and PPM1K were downregulated in stably transfected ψPPM1K-overexpressing cells, but not in cells transfected with an esiRNA1-deletion mutant of ψPPM1K. Furthermore, expression of NEK8 in ψPPM1K-transfected cells demonstrated that NEK8 can counteract the growth inhibitory effects of ψPPM1K. These findings indicate that a transcribed pseudogene can exert tumour-suppressor activity independent of its parental gene by generation of esiRNAs that regulate human cell growth.