p27 plays a vital role in controlling cell proliferation by regulating the activity of cyclin dependent kinases (Cdks). Further, reduction of p27 levels contributes to cell transformation and is a marker for poor prognosis in most cancers. We show that Cdk inhibition by and the stability of p27 is regulated by phosphorylation within the Cdk binding domain by an oncogenic tyrosine kinase. We have determined the structural mechanism by which this initial phosphorylation reaction triggers subsequent Cdk2-mediated phosphorylation of p27 on T187 and initiation of p27 degradation by the ubiquitination pathway. Surface plasmon resonance (SPR) measurements indicate that phosphorylation within the Cdk binding domain decreases the affinity of p27 for Cdk2. NMR studies show that the 3 10-helix of phosphorylated p27 is ejected from the ATP binding pocket of Cdk2, whereas the other domains of p27 (cyclin binding domain and three beta-stands of the Cdk binding domain) remain bound to the Cdk2/cyclin A complex. Unlike native p27, which completely blocks the kinase activity of Cdk2, Cdk2 is partially active (~20%) when phosphorylated p27 is bound. Kinetics studies indicate that Cdk2-mediated T187 phosphorylation of tyrosine phosphorylated p27 is much faster than that of native p27. Further analysis shows that Cdk2-mediated T187 phosphorylation of tyrosine phosphorylated p27 is dominated by a “uni-molecular” reaction due to the residual Cdk2 activity in the phospho-p27/Cdk2/cyclin A ternary complex. In contrast, T187 phosphorylation of native p27 occurs slowly due to a bi-molecular reaction, in which a small amount of free kinase phosphorylates T187 of p27. This study defines a mechanism by which p27 is degraded in cancer cells. The two-step mechanism of oncogenesis is made possible by the intrinsic flexibility of p27.