The propeptide region of the lysyl oxidase proenzyme (LOX-PP) has been shown to inhibit Ras signaling in NIH 3T3 and lung cancer cells with activated RAS, but its mechanism of action is poorly understood. Here, a yeast two-hybrid assay of LOX-PP-interacting proteins identified a clone encoding the intracellular phosphatase domains of receptor-type protein tyrosine phosphatase kappa (RPTP-κ), and the interaction of the two proteins in mammalian cells was confirmed. RPTP-κ is proteolytically processed to isoforms that have opposing effects on β-catenin activity. The RPTP-κ transmembrane P subunit interacts with and sequesters β-catenin at the cell membrane, where it can associate with E-cadherin and promote intercellular interactions. At high cell density, further processing of the P subunit yields a phosphatase intracellular portion (PIC) subunit, which chaperones β-catenin to the nucleus, where it can function to activate transcription. Lung cancer cells were found to contain higher PIC levels than untransformed lung epithelial cells. In H1299 lung cancer cells, ectopic LOX-PP expression reduced the nuclear levels of PIC by increasing its turnover in the lysosome, thereby decreasing the nuclear levels and transcriptional activity of β-catenin while increasing β-catenin membrane localization. Thus, LOX-PP is shown to negatively regulate pro-oncogenic β-catenin signaling in lung cancer cells.