p120-catenin is an E-cadherin-associated protein that modulates E-cadherin function and stability. In response to Wnt3a, p120-catenin is phosphorylated at Ser268 and Ser269, disrupting its interaction with E-cadherin. Here, we describe that Wnt-induced p120-catenin phosphorylation at Ser268 and Ser269 also enhances its binding to the transcriptional factor Kaiso, preventing Kaiso-mediated inhibition of the β-catenin-Tcf-4 transcriptional complex. Kaiso-mediated repression of this complex is due to its association not only with Tcf-4 but also with β-catenin. Disruption of Tcf-4-Kaiso and β-catenin-Kaiso interactions by p120-catenin not only releases Tcf-4 and β-catenin enabling its mutual association and the formation of the transcriptional complex but also permits Kaiso binding to methylated CpG islands, an interaction that is weakly inhibited by p120-catenin. Consequently, Wnt stimulates Kaiso association to the CDKN2A promoter, which contains CpG sequences, in cells where these sequences are extensively methylated, such as HT-29 M6, an effect accompanied by decreased expression of its gene product. These results indicate that, when released from E-cadherin by Wnt3a-stimulated phosphorylation, p120-catenin controls the activity of the Kaiso transcriptional factor, enhancing its binding to repressed promoters and relieving its inhibition of the β-catenin-Tcf-4 transcriptional complex.