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The adenomatous polyposis coli (APC) tumor suppressor protein binds to beta-catenin, a protein recently shown to interact with Tcf and Lef transcription factors. The gene encoding hTcf-4, a Tcf family member that is expressed in colonic epithelium, was cloned and characterized. hTcf-4 transactivates transcription only when associated with beta-catenin. Nuclei of APC-/- colon carcinoma cells were found to contain a stable beta-catenin-hTcf-4 complex that was constitutively active, as measured by transcription of a Tcf reporter gene. Reintroduction of APC removed beta-catenin from hTcf-4 and abrogated the transcriptional transactivation. Constitutive transcription of Tcf target genes, caused by loss of APC function, may be a crucial event in the early transformation of colonic epithelium.