Contact inhibition of proliferation is a critical cell density control mechanism governed by the Hippo signalling pathway. The biochemical signalling underlying cell density‐dependent cues regulating Hippo signalling and its downstream effectors, YAP, remains poorly understood. Here, we reveal that the tight junction protein ZO‐2 is required for the contact‐mediated inhibition of proliferation. We additionally determined that the well‐established molecular players of this process, namely Hippo kinase LATS1 and YAP, are regulated by ZO‐2 and that the scaffolding function of ZO‐2 promotes the interaction with and phosphorylation of YAP by LATS1. Mechanistically, YAP is phosphorylated when ZO‐2 brings LATS1 and YAP together via its SH3 and PDZ domains, respectively, subsequently leading to the cytoplasmic retention and inactivation of YAP. In conclusion, we demonstrate that ZO‐2 maintains Hippo signalling pathway activation by promoting the stability of LATS1 to inactivate YAP.