β-Catenin and plakoglobin are homologous proteins that function in cell adhesion by linking cadherins to the cytoskeleton and in signaling by transactivation together with lymphoid-enhancing binding/T cell (LEF/TCF) transcription factors. Here we compared the nuclear translocation and transactivation abilities of β-catenin and plakoglobin in mammalian cells. Overexpression of each of the two proteins in MDCK cells resulted in nuclear translocation and formation of nuclear aggregates. The β-catenin-containing nuclear structures also contained LEF-1 and vinculin, while plakoglobin was inefficient in recruiting these molecules, suggesting that its interaction with LEF-1 and vinculin is significantly weaker. Moreover, transfection of LEF-1 translocated endogenous β-catenin, but not plakoglobin to the nucleus. Chimeras consisting of Gal4 DNA-binding domain and the transactivation domains of either plakoglobin or β-catenin were equally potent in transactivating a Gal4-responsive reporter, whereas activation of LEF-1– responsive transcription was significantly higher with β-catenin. Overexpression of wild-type plakoglobin or mutant β-catenin lacking the transactivation domain induced accumulation of the endogenous β-catenin in the nucleus and LEF-1–responsive transactivation. It is further shown that the constitutive β-catenin–dependent transactivation in SW480 colon carcinoma cells and its nuclear localization can be inhibited by overexpressing N-cadherin or α-catenin. The results indicate that (a) plakoglobin and β-catenin differ in their nuclear translocation and complexing with LEF-1 and vinculin; (b) LEF-1–dependent transactivation is preferentially driven by β-catenin; and (c) the cytoplasmic partners of β-catenin, cadherin and α-catenin, can sequester it to the cytoplasm and inhibit its transcriptional activity.