Inflammatory cytokines have been proposed to regulate epithelial homeostasis during intestinal inflammation. We report here that interferon-gamma (IFN-gamma) regulates the crucial homeostatic functions of cell proliferation and apoptosis through serine-threonine protein kinase AKT-beta-catenin and Wingless-Int (Wnt)-beta-catenin signaling pathways. Short-term exposure of intestinal epithelial cells to IFN-gamma resulted in activation of beta-catenin through AKT, followed by induction of the secreted Wnt inhibitor Dkk1. Consequently, we observed an increase in Dkk1-mediated apoptosis upon extended IFN-gamma treatment and reduced proliferation through depletion of the Wnt coreceptor LRP6. These effects were enhanced by tumor necrosis factor-alpha (TNF-alpha), suggesting synergism between the two cytokines. Consistent with these results, colitis in vivo was associated with decreased beta-catenin-T cell factor (TCF) signaling, loss of plasma membrane-associated LRP6, and reduced epithelial cell proliferation. Proliferation was partially restored in IFN-gamma-deficient mice. Thus, we propose that IFN-gamma regulates intestinal epithelial homeostasis by sequential regulation of converging beta-catenin signaling pathways.