Nuclear activation of Wnt/beta-catenin signaling is required for cell proliferation in inflammation and cancer. Studies from our group indicate that beta-catenin activation in colitis and colorectal cancer (CRC) correlates with increased nuclear levels of beta-catenin phosphorylated at serine 552 (pbeta-Cat(552)). Biochemical analysis of nuclear extracts from cancer biopsies revealed the existence of low molecular weight (LMW) pbeta-Cat(552), increased to the exclusion of full size (FS) forms of beta-catenin. LMW beta-catenin lacks both termini, leaving residues in the armadillo repeat intact. Further experiments showed that TCF4 predominantly binds LMW pbeta-Cat(552) in the nucleus of inflamed and cancerous cells. Nuclear chromatin bound localization of LMW pbeta-Cat(552) was blocked in cells by inhibition of proteasomal chymotrypsin-like activity but not by other protease inhibitors. K48 polyubiquitinated FS and LMW beta-catenin were increased by treatment with bortezomib. Overexpressed in vitro double truncated beta-catenin increased transcriptional activity, cell proliferation and growth of tumor xenografts compared to FS beta-catenin. Serine 552-> alanin substitution abrogated K48 polyubiquitination, beta-catenin nuclear translocation and tumor xenograft growth. These data suggest that a novel proteasome-dependent posttranslational modification of beta-catenin enhances transcriptional activation. Discovery of this pathway may be helpful in the development of diagnostic and therapeutic tools in colitis and cancer.