Mutational inactivation of adenomatous polyposis coli (APC) initiates most colon carcinomas. APC functions include targeting cytoplasmic beta-catenin, a Wnt pathway mediator, for proteolysis. Although APC shuttles between cytoplasm and nucleus, the role of nuclear APC protein, particularly with respect to nuclear beta-catenin levels and activity, remains unclear. Here, we demonstrate that APC lacking functional nuclear localization signals (NLSs) or nuclear export signals (NESs) does not effectively downregulate nuclear beta-catenin levels; neither does wild-type APC when nuclear export is blocked. While APC bearing mutated NLSs could not downregulate beta-catenin-mediated transcriptional activation, APC lacking NESs remained active. Consistent with the hypothesis that nuclear APC lacking NESs can inhibit beta-catenin function by sequestration, we show that endogenous APC and beta-catenin proteins interact within the nucleus. These data demonstrate that nuclear APC binding to beta-catenin, and then inducing its nuclear export, plays a critical role in the control of nuclear beta-catenin levels and activity.