We studied the effect of N-cadherin, and its free or membrane-anchored cytoplasmic domain, on the level and localization of β-catenin and on its ability to induce lymphocyte enhancer-binding factor 1 (LEF-1)-responsive transactivation. These cadherin derivatives formed complexes with β-catenin and protected it from degradation. N-cadherin directed β-catenin into adherens junctions, and the chimeric protein induced diffuse distribution of β-catenin along the membrane whereas the cytoplasmic domain of N-cadherin colocalized with β-catenin in the nucleus. Cotransfection of β-catenin and LEF-1 into Chinese hamster ovary cells induced transactivation of a LEF-1 reporter, which was blocked by the N-cadherin-derived molecules. Expression of N-cadherin and an interleukin 2 receptor/cadherin chimera in SW480 cells relocated β-catenin from the nucleus to the plasma membrane and reduced transactivation. The cytoplasmic tails of N- or E-cadherin colocalized with β-catenin in the nucleus, and suppressed the constitutive LEF-1-mediated transactivation, by blocking β-catenin–LEF-1 interaction. Moreover, the 72 C-terminal amino acids of N-cadherin stabilized β-catenin and reduced its transactivation potential. These results indicate that β-catenin binding to the cadherin cytoplasmic tail either in the membrane, or in the nucleus, can inhibit β-catenin degradation and efficiently block its transactivation capacity.