Inflammation-induced carcinogenesis is associated with increased proliferation and migration/invasion of various types of tumor cells. In this study, altered β-catenin signaling upon TNFα exposure, and relation to loss of function of the tumor suppressor NKX3.1 was examined in prostate cancer cells. We used an in vitro prostate inflammation model to demonstrate altered sub-cellular localization of β-catenin following increased phosphorylation of Akt(S473) and GSK3β(S9). Consistently, we observed that subsequent increase in β-catenin transactivation enhanced c-myc, cyclin D1 and MMP2 expressions. Consequently, it was also observed that the β-catenin-E-cadherin association at the plasma membrane was disrupted during acute cytokine exposure. Additionally, it was demonstrated that disrupting cell-cell interactions led to increased migration of LNCaP cells in real-time migration assay. Nevertheless, ectopic expression of NKX3.1, which is degraded upon proinflammatory cytokine exposure in inflammation, was found to induce the degradation of β-catenin by inhibiting Akt(S473) phosphorylation, therefore, partially rescued the disrupted β-catenin-E-cadherin interaction as well as the cell migration in LNCaP cells upon cytokine exposure. As, the disrupted localization of β-catenin at the cell membrane as well as increased Akt(S308) priming phosphorylation was observed in human prostate tissues with prostatic inflammatory atrophy (PIA), high-grade prostatic intraepithelial neoplasia (H-PIN) and carcinoma lesions correlated with loss of NKX3.1 expression. Thus, the data indicate that the β-catenin signaling; consequently sub-cellular localization is deregulated in inflammation, associates with prostatic atrophy and PIN pathology.