Activity of FOXO (forkhead box O) transcription factors is inhibited by growth factor–PI3K (phosphoinositide 3-kinase)–PKB (protein kinase B)/Akt signalling to control a variety of cellular processes including cell cycle progression. Through comparative analysis of a number of microarray datasets we identified a set of genes commonly regulated by FOXO proteins and PI3K–PKB/Akt, which includes CTDSP2 (C-terminal domain small phosphatase 2). We validated CTDSP2 as a genuine FOXO target gene and show that ectopic CTDSP2 can induce cell cycle arrest. We analysed transcriptional regulation after CTDSP2 expression and identified extensive regulation of genes involved in cell cycle progression, which depends on the phosphatase activity of CTDSP2. The most notably regulated gene is the CDK (cyclin-dependent kinase) inhibitor p21Cip1/Waf1 and in the present study we show that p21Cip1/Waf1 is partially responsible for the cell cycle arrest through decreasing cyclin–CDK activity. Our data suggest that CTDSP2 induces p21Cip1/Waf1 through increasing the activity of Ras. As has been described previously, Ras induces p21Cip1/Waf1 through p53-dependent and p53-independent pathways and indeed both p53 and MEK inhibition can mitigate the CTDSP2-induced p21Cip1/Waf1 mRNA up-regulation. In support of Ras activation by CTDSP2, depletion of endogenous CTDSP2 results in reduced Ras activity and thus CTDSP2 seems to be part of a larger set of genes regulated by FOXO proteins, which increase growth factor signalling upon FOXO activation.