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Inactivation of the adenomatous polyposis coli (APC) tumor suppressor gene initiates colorectal neoplasia. One of the biochemical activities associated with the APC protein is down-regulation of transcriptional activation mediated by β-catenin and T cell transcription factor 4 (Tcf-4). The protein products of mutant APC genes present in colorectal tumors were found to be defective in this activity. Furthermore, colorectal tumors with intact APC genes were found to contain activating mutations of β-catenin that altered functionally significant phosphorylation sites. These results indicate that regulation of β-catenin is critical to APC's tumor suppressive effect and that this regulation can be circumvented by mutations in either APC or β-catenin.