In this paper we study well-posedness and stability of a free boundary problem modeling the growth of multi-layer tumors under the action of external inhibitors. An important feature of this problem is that the surface tension of the free boundary is taken into account. We first reduce this free boundary problem into an evolution equation in little Hölder space and use the well-posedness theory for differential equations in Banach spaces of parabolic type (i.e., equations which are treatable by using the analytic semi-group theory) to prove that this free boundary problem is locally well-posed for initial data belonging to a little Hölder space. Next we study flat solutions of this problem. We obtain all flat stationary solutions and give a precise description of asymptotic stability of these stationary solutions under flat perturbations. Finally we investigate asymptotic stability of flat stationary solutions under non-flat perturbations. By carefully analyzing the spectrum of the linearized stationary problem and employing the theory of linearized stability for differential equations in Banach spaces of parabolic type, we give a complete analysis of stability and instability of all flat stationary solutions under small non-flat perturbations.