Handling UserControl by Clicking on the Button

Place both of your user controls inside panel2 only, with setting the visibility property to Visible="false". on the click events of your buttons, just set visibility property to true/false for the relevant user controls.

mark as answer if solves ur problem.

Place your UserControls within the user controls panel. They don't need to sit anywhere special, just so you reach any of them in design mode in case you want to change something.

When starting your application, tell each of them to cover the whole user controls panel, but at the same time go invisible.

public class Form1
{
    protected override OnLoad( object sender, EventArgs e)
    {
        foreach( Control control in userControlsPanel.Controls)
        {
            control.Dock = DockStyle.Fill;
            control.Visible = false;
        }
    }
}

Then create event handler methods for your buttons. One of them could look like this

public class Form1
{
    private void Button1_Click( object sender, EventArgs e)
    {
        foreach( Control control in userControlPanel.Controls)
        {
            control.Visible = AreAssociated( Button1, control);
        }
    }
}

There are several ways how you could associate a button with one of the user controls.

You could use the button's Tag property in such a way:

Button1.Tag = UserControl1;

Above code would then change to
control.Visible = ( control.Equals(Button1.Tag));
Furthermore, it would be nicer not to have one event handler per button, but to have one event handler that handles all the Click events of the similarly used buttons. You can attach one event handler so several button click events. The handler could then look like

public class Form1
{
    private void AnyButton_Click( object sender, EventArgs e)
    {
        if(!(sender is Button))
        {
            throw new ArgumentException("AnyButton_Click() has to be called by a Button.");
        }


        foreach( Control control in userControlPanel.Controls)
        {
            control.Visible = control.Equals((Button)sender).Tag;
        }
    }
}

Just to round out the answers given here, which are all good:

If there's ever a case where you want to show both UserControls at the same time, you might consider using a SplitContainer:

You can program it so that in response to a certain mouse event (or keystroke combination), like a double-click, you can toggle it between showing one UserControl at a time, and use the same, or a different 'direct action,' to put it back in its default mode where you can have some portion of each UserControl visible depending on where the user moves the splitter.

imho this would be most suited to a scenario in which there is some interaction between the two UserControls.