Cadherins are transmembrane glycoproteins involved in Ca2+-dependent cell-cell adhesion. Previously, we showed that the conserved membrane-proximal region of the E cadherin cytoplasmic domain negatively regulates adhesion activity. In this report, we provide several lines of evidence that p120(ctn) is involved in this negative regulation. p120(ctn) binds to the membrane-proximal region of the nonfunctional carboxyl-terminally deleted E-cadherin protein. An additional internal deletion in this region prevented the association with p120(ctn) and activated the protein, as seen in an aggregation assay. Furthermore, the nonfunctional E-cadherin can be activated through coexpression of p120(ctn) proteins with amino-terminal deletions, which eliminate several potential serine/threonine phosphorylation sites but do not affect the ability to bind to cadherins, Finally, we show that staurosporine, a kinase inhibitor, induces an increased electrophoretic mobility of p120(ctn) bound to E-cadherin polypeptides, activates the nonfunctional E-cadherin protein, and converts the wildtype E-cadherin and an E-cadherin-alpha-catenin chimeric protein from a cytochalasin D-sensitive to a cytochalasin D-insensitive state. Together, these results indicate that p120(ctn) is a modulator of E-cadherin-mediated cell adhesion.