beta-Catenin regulates important biological processes, including embryonic development and tumorigenesis. We have investigated the role of beta-catenin in the regulation of the chondrocyte phenotype. Expression of beta-catenin was high in prechondrogenic mesenchymal cells, but significantly decreased in differentiated chondrocytes both in vivo and in vitro. Accumulation of beta-catenin by the inhibition of glycogen synthase kinase-3beta with LiCl inhibited chondrogenesis by stabilizing cell-cell adhesion. Conversely, the low level of beta-catenin in differentiated articular chondrocytes was increased by post-translational stabilization during phenotypic loss caused by a serial monolayer culture or exposure to retinoic acid or interleukin-1beta. Ectopic expression of beta-catenin or inhibition of beta-catenin degradation with LiCl or proteasome inhibitor caused de-differentiation of chondrocytes. Transcriptional activation of beta-catenin by its nuclear translocation was sufficient to cause phenotypic loss of differentiated chondrocytes. Expression pattern of Jun, a known target gene of beta-catenin, is essentially the same as that of beta-catenin both in vivo and in vitro suggesting that Jun and possibly activator protein 1 is involved in the beta-catenin regulation of the chondrocyte phenotype.