Erbin is a member of the leucine-rich repeat and PDZ domain family that can regulate proliferation, differentiation and cell adhesion. As a binding partner of the receptor tyrosine kinase ErbB2, erbin targets this receptor to the basolateral membrane of polarized epithelial cells. In addition, erbin is known to inhibit the Ras-mediated activation of the mitogen-activated protein kinase pathway. Recently we identified the proto-oncoprotein β-catenin as a ligand of the PDZ domain of erbin. Here we demonstrate that erbin acts as a negative regulator of the β-catenin/T-cell-factor-dependent gene expression. In contrast, a mutant of erbin with a deletion of the N-terminal leucine-rich repeat allows the PDZ domain of erbin to increase the β-catenin/T-cell-factor-dependent transcription. This mutant localizes to the nucleus and mimics a putative splice variant found in keratinocytes. Thus, erbin has the potential to act as an inhibitor as well as an activator of the β-catenin-regulated gene expression.