Contact inhibition is the process by which cells switch from a motile growing state to a passive and stabilized state upon touching their neighbors. When two cells touch, an adhesion link is created between them by means of transmembrane E-cadherin proteins. Simultaneously, their actin filaments stop polymerizing in the direction perpendicular to the membrane and reorganize to create an apical belt that colocalizes with the adhesion links. Here, we propose a detailed quantitative model of the role of cytoplasmic beta-catenin and alpha-catenin proteins in this process, treated as a reaction-diffusion system. Upon cell-cell contact the concentration in alpha-catenin dimers increases, inhibiting actin branching and thereby reducing cellular motility and expansion pressure. This model provides a mechanism for contact inhibition that could explain previously unrelated experimental findings on the role played by E-cadherin, beta-catenin, and alpha-catenin in the cellular phenotype and in tumorigenesis. In particular, we address the effect of a knockout of the adenomatous polyposis coli tumor suppressor gene. Potential direct tests of our model are discussed.