The p27 Kip1 protein associates with G 1‐specific cyclin–CDK complexes and inhibits their catalytic activity. p27 Kip1 is regulated at various levels, including translation, degradation by the ubiquitin/proteasome pathway and non‐covalent sequestration. Here, we describe point mutants of p27 deficient in their interaction with either cyclins (p27 c−), CDKs (p27 k−) or both (p27 ck−), and demonstrate that each contact is critical for kinase inhibition and induction of G 1 arrest. Through its intact cyclin contact, p27 k− associated with active cyclin E–CDK2 and, unlike wild type p27, p27 c− or p27 ck−, was efficiently phosphorylated by CDK2 on a conserved C‐terminal CDK target site (TPKK). Retrovirally expressed p27 k− was rapidly degraded through the proteasome in Rat1 cells, but was stabilized by secondary mutation of the TPKK site to VPKK. In this experimental setting, exogenous wild‐type p27 formed inactive ternary complexes with cellular cyclin E–CDK2, was not degraded through the proteasome, and was not further stabilized by the VPKK mutation. p27 ck−, which was not recruited to cyclin E–CDK2, also remained stable in vivo. Thus, selective degradation of p27 k− depended upon association with active cyclin E–CDK2 and subsequent phosphorylation. Altogether, these data show that p27 must be phosphorylated by CDK2 on the TPKK site in order to be degraded by the proteasome. We propose that cellular p27 must also exist transiently in a cyclin‐bound non‐inhibitory conformation in vivo.