Previous reports showed that receptor-type protein-tyrosine phosphatase PTPRK co-localizes with beta-catenin at adherens junctions, and in vitro experiments suggested that beta-catenin could be substrate of PTPRK-mediated phosphatase activity. beta-catenin is a molecule endowed with a dual function being involved both in cell adhesion and in Wnt signaling pathway. Here we provide evidence for the role of PTPRK in negatively regulating the beta-catenin transcriptional activity by modulating its intracellular and membrane distribution. Expression of PTPRK protein in HEK293 cells and in PTPRK-null melanoma cell lines, one of which harbors a mutated oncogenic beta-catenin, impairs nuclear accumulation of wild type and oncogenic forms of beta-catenin, limits cytosolic levels of tyrosine-phosphorylated beta-catenin, and leads to re-localization of E-cadherin/beta-catenin complexes in ordered membrane phase along cell-cell contacts. This re-modulation of beta-catenin cellular distribution results in the inhibition of cyclin D1 and c-myc protein expression, whose genes are targets of beta-catenin. Tumor cells upon re-expression of PTPRK have a reduced proliferative and migration capacity. Moreover we show that PTPRK is also active in negatively regulating the transactivating function of beta-catenin in normal melanocytes as confirmed by experiments with silenced PTPRK by specific siRNA. Our data show that PTPRK influences transactivating activity of beta-catenin in non-tumoral and neoplastic cells by regulating the balance between signaling and adhesive beta-catenin, thus providing biochemical basis for the hypothesis of PTPRK as a tumor suppressor gene.