Melanoma is highly metastatic and resistant to chemotherapeutic drugs. Our previous studies have demonstrated that caffeic acid phenethyl ester (CAPE) suppresses the growth of melanoma cells and induces reactive oxygen species generation. However, the exact mechanism of the growth suppressive effects of CAPE was not clear. Here, we determined the potential mechanism of CAPE against melanoma in vivo and in vitro. Administration of 10 mg/kg/day CAPE substantially suppressed the growth of B16F0 tumor xenografts in C57BL/6 mice. Tumors from CAPE-treated mice showed reduced phosphorylation of phosphoinositide 3-kinase, AKT, mammalian target of rapamycin and protein level of X-linked inhibitor of apoptosis protein (XIAP) and enhanced the cleavage of caspase-3 and poly (ADP ribose) polymerase. In order to confirm the in vivo observations, melanoma cells were treated with CAPE. CAPE treatment suppressed the activating phosphorylation of phosphoinositide 3-kinase at Tyr 458, phosphoinositide-dependent kinase-1 at Ser 241, mammalian target of rapamycin at Ser 2448 and AKT at Ser 473 in B16F0 and SK-MEL-28 cells in a concentration and time-dependent study. Furthermore, the expression of XIAP, survivin and BCL-2 was downregulated by CAPE treatment in both cell lines. Significant apoptosis was observed by CAPE treatment as indicated by cleavage of caspase-3 and poly (ADP ribose) polymerase. AKT kinase activity was inhibited by CAPE in a concentration-dependent manner. CAPE treatment increased the nuclear translocation of XIAP, indicating increased apoptosis in melanoma cells. To confirm the involvement of reactive oxygen species in the inhibition of AKT/XIAP pathway, cells were treated with antioxidant N-acetyl-cysteine (NAC) prior to CAPE treatment. Our results indicate that NAC blocked CAPE-mediated AKT/XIAP inhibition and protected the cells from apoptosis. Because AKT regulates XIAP, their interaction was examined by immunoprecipitation studies. Our results show that CAPE treatment decreased the interaction of AKT with XIAP. To establish the involvement of AKT in the apoptosis-inducing effects of CAPE, cells were transfected with AKT. Our results revealed that AKT overexpression attenuated the decrease in XIAP and significantly blocked CAPE-mediated apoptosis. Similarly, overexpression of XIAP further decreased CAPE-induced apoptosis. Taken together, our results suggest that CAPE suppresses phosphoinositide 3-kinase/AKT/XIAP pathway leading to apoptosis in melanoma tumor cells in vitro and in vivo.