The adenomatous polyposis coli (APC) gene is considered as the true gatekeeper of colonic epithelial proliferation: It is mutated in the majority of colorectal tumors, and mutations occur at early stages of tumor development in mouse and man. These mutant proteins lack most of the seven 20-amino-acid repeats and all SAMP motifs that have been associated with down-regulation of intracellular beta-catenin levels. In addition, they lack the carboxy-terminal domains that bind to DLG, EB1, and microtubulin. APC also appears to be essential in development because homozygosity for mouse Apc mutations invariably results in early embryonic lethality. Here, we describe the generation of a mouse model carrying a targeted mutation at codon 1638 of the mouse Apc gene, Apc1638T, resulting in a truncated Apc protein encompassing three of the seven 20 amino acid repeats and one SAMP motif, but missing all of the carboxy-terminal domains thought to be associated with tumorigenesis. Surprisingly, homozygosity for the Apc1638T mutation is compatible with postnatal life. However, homozygous mutant animals are characterized by growth retardation, a reduced postnatal viability on the B6 genetic background, the absence of preputial glands, and the formation of nipple-associated cysts. Most importantly, Apc1638T/1638T animals that survive to adulthood are tumor free. Although the full complement of Apc1638T is sufficient for proper beta-catenin signaling, dosage reductions of the truncated protein result in increasingly severe defects in beta-catenin regulation. The SAMP motif retained in Apc1638T also appears to be important for this function as shown by analysis of the Apc1572T protein in which its targeted deletion results in a further reduction in the ability of properly controlling beta-catenin/Tcf signaling. These results indicate that the association with DLG, EB1, and microtubulin is less critical for the maintenance of homeostasis by APC than has been suggested previously, and that proper beta-catenin regulation by APC appears to be required for normal embryonic development and tumor suppression.