Long noncoding RNAs (lncRNAs) have emerged as important regulators in the development and progression of gastric cancer (GC). ARHGAP27P1 is a pseudogene-derived lncRNA, and it has been found to be associated with GC in our preliminary study, but this association has not been studied further. Herein, we confirmed that ARHGAP27P1 was significantly downregulated in GC tissues, plasma and cells. Low expression of ARHGAP27P1 was closely associated with advanced TNM stage, increased invasion depth and lymphatic metastasis. Low ARHGAP27P1 expression also predicted a poor prognosis in GC patients. Functionally, overexpression of ARHGAP27P1 inhibited proliferation, invasion, and migration in GC cells, while silencing of ARHGAP27P1 showed the opposite effects. Mechanistic investigations showed that ARHGAP27P1 had a key role in G0/G1 arrest. We further demonstrated that ARHGAP27P1 was associated with Jumonji-domain containing 3 (JMJD3) and that this association was required for the demethylation of H3K27me3, thereby epigenetically activating expression of p15, p16 and p57. Moreover, knockdown of JMJD3, p15, or p16 consistently reversed the inhibitory effects of ARHGAP27P1 in cell proliferation and cell cycle progression. Taken together, these results suggest that lncRNA ARHGAP27P1, as a novel cell cycle regulator, may serve as a potential target for GC prevention and treatment in human GC.