Tumor necrosis factor-alpha (TNF-α) plays important roles in chronic inflammation-associated tumorigenesis but the mechanisms involved remain poorly understood. Previously, we reported that high levels of FAT10 led to chromosomal instability that is mediated by an abbreviated mitotic phase. Here, we show that TNF-α induces FAT10 gene expression through TNF receptor 1 (TNFR1) and activates the NF-κB pathway in HCT116 and SW620 cells. TNF-α treatment also leads to an abbreviated mitotic phase that can be reversed by inhibiting FAT10 expression. This abbreviated mitotic phase is correlated with a TNF-α-induced reduction in the kinetochore localization of MAD2 during prometaphase which, again, can be reversed by inhibiting FAT10 gene expression. There is greater variability of chromosome numbers in HCT116 and SW620 cells treated with TNF-α than in untreated cells, which can be reversed by the introduction of short hairpin RNA (shRNA) against FAT10. The more stable chromosome numbers in HCT116 cells expressing FAT10 shRNA can revert to greater variability with the addition of a mutant FAT10 that is not recognized by the FAT10 shRNA. Upon TNF-α stimulation, higher cell death is observed when FAT10 expression is inhibited by shRNA. These data strongly suggest that FAT10 plays an important role in mediating the function of TNF-α during tumorigenesis by inducing cell cycle deregulation and chromosomal instability, and by inhibiting apoptosis.