Aberrant activation of β‐catenin contributes to the onset of a variety of tumors. We report that a tumor‐derived β‐catenin mutant induces accumulation and activation of the p53 tumor suppressor protein. Induction is mediated through ARF, an alternative reading frame product of the INK4A tumor suppressor locus, in a manner partially dependent on the transcription factor E2F1. In wild‐type mouse embryo fibroblasts, mutant β‐catenin inhibits cell proliferation and imposes a senescence‐like phenotype. This does not occur in cells lacking either ARF or p53, where deregulated β‐catenin actually overrides density‐dependent growth inhibition and cooperates with activated Ras in transformation. Thus, the oncogenic activity of deregulated β‐catenin is curtailed by concurrent activation of the p53 pathway, thereby providing a protective mechanism against cancer. When the p53 pathway is impaired, deregulated β‐catenin is free to manifest its oncogenic features. This can occur not only by p53 mutations, but also by ablation of ARF expression, as observed frequently in early stages of colorectal carcinogenesis.