Germline mutations in the BHD/FLCN tumor suppressor gene predispose patients to develop renal tumors in the hamartoma syndrome, Birt-Hogg-Dubé (BHD). BHD encodes folliculin, a protein with unknown function that may interact with the energy- and nutrient-sensing AMPK-mTOR signaling pathways. To clarify BHD function in the mouse, we generated a BHD knockout mouse model. BHD homozygous null (BHD^d/d) mice displayed early embryonic lethality at E5.5–E6.5, showing defects in the visceral endoderm. BHD heterozygous knockout (BHDd^/+) mice appeared normal at birth but developed kidney cysts and solid tumors as they aged (median kidney-lesion-free survival = 23 months, median tumor-free survival = 25 months). As observed in human BHD kidney tumors, three different histologic types of kidney tumors developed in BHD^d/+ mice including oncocytic hybrid, oncocytoma, and clear cell with concomitant loss of heterozygosity (LOH), supporting a tumor suppressor function for BHD in the mouse. The PI3K-AKT pathway was activated in both human BHD renal tumors and kidney tumors in BHD^d/+ mice. Interestingly, total AKT protein was elevated in kidney tumors compared to normal kidney tissue, but without increased levels of AKT mRNA, suggesting that AKT may be regulated by folliculin through post translational or post-transcriptional modification. Finally, BHD inactivation led to both mTORC1 and mTORC2 activation in kidney tumors from BHD^d/+ mice and human BHD patients. These data support a role for PI3K-AKT pathway activation in kidney tumor formation caused by loss of BHD and suggest that inhibitors of both mTORC1 and mTORC2 may be effective as potential therapeutic agents for BHD-associated kidney cancer.