Secreted modular calcium binding protein-2 (SMOC2), a recently identified matricellular protein that belongs to the SPARC protein family, has been reported to be downregulated in various cancers. The purpose of this study was to investigate the clinical significance and biological function of SMOC2 in human hepatocellular carcinoma. Real-time quantitative PCR and western blotting analyses revealed that SMOC2 mRNA and protein levels were significantly downregulated in human HCC tissues compared to the matched adjacent normal tissues. Clinicopathological analysis indicated that SMOC2 expression was significantly associated with tumor size, number of tumors, tumor-node-metastasis (TNM) stage and distant metastasis. Kaplan-Meier survival analysis showed that high tumor SMOC2 expression was associated with improved overall survival and disease-free survival in patients with HCC. Functional analyses (cell proliferation and colony formation assays, cell migration and invasion assays, cell cycle and apoptosis assays) demonstrated that stable overexpression of SMOC2 using a lentiviral vector significantly inhibited cell proliferation, colony formation, migration and invasion, and induced G0/G1 phase arrest in HCC cells in vitro. In addition, experiments with a mouse model revealed the suppressed effect of SMOC2 on HCC tumorigenicity and metastases in vivo. These results suggest that SMOC2 functions as a tumor suppressor during the development of HCC and may represent an effective prognostic factor and novel therapeutic target for HCC.