Dapper homolog (DACT) 2 is one of the Dact gene family members, which are important modulators of Wnt signaling pathway. We aim to clarify its epigenetic inactivation, biological function and clinical implication in colon cancer. DACT2 was silenced in five out of eight colon cancer cell lines, but robustly expressed in normal colon tissues. The loss of DACT2 expression was regulated by promoter hypermethylation. Restoring DACT2 expression in colon cancer cell lines suppressed tumor cell growth by inducing cell apoptosis and inhibiting cell proliferation both in vitro and in vivo. Moreover, DACT2 overexpression effectively reduced lung metastasis of colon cancer cells in nude mice. These effects by DACT2 were attributed to inhibition of Wnt/β-catenin signaling. Reexpression of DACT2 significantly suppressed the transcriptional activity of both wild-type β-catenin and degradation-resistant form mutant β-catenin (S33Y). DACT2 could actively shuttle into and out of nuclei, with its predominant steady-state localization in the cytoplasm dependent on its nuclear export signal. Co-immunoprecipitation results indicated that DACT2 strongly associated β-catenin as well as lymphoid enhancer-binding factor 1 (LEF1) and directly disrupted the formation of the β-catenin-LEF1 complex in the nucleus. Whereas in the cytoplasm, DACT2 restored junctional localization of E-cadherin-β-catenin complexes and prevented β-catenin nuclear translocation through direct interaction with β-catenin. DACT2 methylation was detected in 43.3% (29/67) of colon cancer tissues, but none in normal controls. Multivariate analysis revealed that patients with DACT2 methylation had a significant decrease in overall survival (P=0.006). Kaplan-Meier survival curves showed that DACT2 methylation was significantly associated with shortened survival in stage I-III colon cancer patients. In conclusion, DACT2 acts as a functional tumor suppressor in colon cancer through inhibiting Wnt/β-catenin signaling. Its methylation at early stages of colon carcinogenesis is an independent prognostic factor.Oncogene advance online publication, 14 July 2014; doi:10.1038/onc.2014.201.