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Agents that can modulate colonic environment and control dysregulated signaling are being evaluated for their chemopreventive potential in colon cancer. Ursodeoxycholate (UDCA) has shown chemopreventive potential in preclinical and animal models of colon cancer, but the mechanism behind it remains unknown. Here biological effects of UDCA were examined to understand mechanism behind its chemoprevention in colon cancer. Our data suggests that UDCA can suppress growth in a wide variety of cancer cell lines and can induce low level of apoptosis in colon cancer cells. We also found that UDCA treatment induces alteration in morphology, increased cell size, upregulation of cytokeratin 8, 18 and 19 and E-cadherin, cytokeratin remodeling and accumulation of lipid droplets, suggesting that UDCA induces differentiation in colon carcinoma cells. Our results also suggest significant differences in UDCA and sodium butyrate induced functional differentiation. We also report for the first time that UDCA can induce senescence in colon cancer cells as assessed by flattened, spread out and vacuolated morphology as well as by senescence marker β-galactosidase staining. We also found that UDCA inhibits the telomerase activity. Surprisingly, we found that UDCA is not a histone deacytylase inhibitor but instead induces hypoacetylation of histones unlike hyperacetylation induced by sodium butyrate. Our results also suggest that, although UDCA induced senescence is p53, p21 and Rb independent, HDAC6 appears to be important in UDCA induced senescence. In summary, our data shows that UDCA modulates chromatin by inducing histone hypoacetylation and induces differentiation and senescence in colon cancer cells.