Rac1b is a tumor-specific splice variant of the Rac1 GTPase that displays limited functional similarities to Rac1. We have shown previously a novel cross-talk between Rac1 and beta-catenin, which induces canonical Wnt pathway activation in colorectal cancer cells. This prompted us to investigate if Rac1b, frequently overexpressed in colon tumors, contributes to Wnt pathway dysregulation. We show that Rac1b overexpression stimulates Tcf-mediated gene transcription, whereas depletion of Rac1b results in decreased expression of the Wnt target gene cyclin D1. Reconstitution experiments revealed an important difference between Rac1 and Rac1b such that Rac1b was capable of functionally interacting with Dishevelled-3 (Dvl-3) but not beta-catenin to mediate synergistic induction of Wnt target genes. In agreement, Dvl-3 but not beta-catenin caused increased activation of Rac1b levels, which may explain the functional cooperativity displayed in transcription assays. Furthermore, we show that Rac1b negatively regulates E-cadherin expression and results in decreased adhesion of colorectal cancer cells. RNA interference-mediated suppression of Rac1b resulted in reduced expression of Slug, a specific transcriptional repressor of E-cadherin, and a concomitant increase in E-cadherin transcript levels was observed. Intriguingly, mutation of the polybasic region of Rac1b resulted in complete loss of Rac1b stimulatory effects on transcription and suppressive effects on adhesion, indicating the importance of nuclear and membrane localization of Rac1b. Our results suggest that Rac1b overexpression may facilitate tumor progression by enhancing Dvl-3-mediated Wnt pathway signaling and induction of Wnt target genes specifically involved in decreasing the adhesive properties of colorectal cancer cells.