Constitutive activation of the transcription factor TCF4 activity by mutated APC or beta-catenin contributes to cell neoplastic transformation. While numerous proteins were identified to activate TCF4-dependent activity via beta-catenin interaction, little is known about factors directly acting on TCF4. Here we report that Daxx binds to TCF4 and potentiates beta-catenin/TCF4-mediated transcriptional activation and target gene expression. Binding studies revealed that Daxx-TCF4 interaction is through the C-terminal domain of Daxx and TCF4 segment containing amino acid residue 269-327. Alteration of Daxx levels in cells by overexpression or RNA interference resulted in an increase or decrease of the beta-catenin/TCF4-dependent transactivation activity and target gene expression, respectively. Furthermore, TCF4-(269-327) segment acts as a dominantly negative mutant by blocking Daxx-TCF4 interaction and TCF4-mediated transactivation potential. Together, our results suggest that Daxx functions as a positive coregulator in modulating the beta-catenin/TCF4-dependent transcriptional potential via TCF4 interaction. (C) 2009 Elsevier Inc. All rights reserved.