Mutations in the adenomatous polyposis coli (APC) tumor suppressor gene seem to underlie the initiation of many colorectal carcinomas. Loss of APC function results in accumulation of beta-catenin and activation of beta-catenin/TCF-dependent transcription. Recent studies have implicated APC in controlling retinoic acid biosynthesis during normal intestinal development through a WNT-independent mechanism. Paradoxically, however, previous studies found that dietary supplementation of Apc(MIN) mice with retinoic acid failed to abrogate adenoma formation. While investigating the above finding, we found that expression of CYP26A1, a major retinoic acid catabolic enzyme, was up-regulated in Apc(MIN) mouse adenomas, human FAP adenomas, human sporadic colon carcinomas, and in the intestine of apc(mcr) mutant zebrafish embryos. Mechanistically, cyp26a1 induction following apc mutation is dependent on WNT signaling as antisense morpholino knockdown of tcf4 or injection of a dnLEF construct into apc(mcr) mutant zebrafish suppressed expression of cyp26a1 along with known WNT target genes. In addition, injection of stabilized beta-catenin or dnGSK3beta into wild-type embryos induced cyp26a1 expression. Genetic knockdown or pharmacologic inhibition of cyp26a1 in apc(mcr) mutant zebrafish embryos rescued gut differentiation defects such as expression of intestinal fatty acid-binding protein and pancreatic trypsin. These findings support a novel role for APC in balancing retinoic acid biosynthesis and catabolism through WNT-independent and WNT-dependent mechanisms.