Aberrant activation of Wnt/β-catenin signaling, resulting in the expression of Wnt-regulated oncogenes, is recognized as a critical factor in the etiology of colorectal cancer. Occupancy of β-catenin at promoters of Wnt target genes drives transcription, but the mechanism of β-catenin action remains poorly understood. Here, we show that CARM1 (coactivator-associated arginine methyltransferase 1) interacts with β-catenin and positively modulates β-catenin-mediated gene expression. In colorectal cancer cells with constitutively high Wnt/β-catenin activity, depletion of CARM1 inhibits expression of endogenous Wnt/β-catenin target genes and suppresses clonal survival and anchorage-independent growth. We also identified a colorectal cancer cell line (RKO) with a low basal level of β-catenin, which is dramatically elevated by treatment with Wnt3a. Wnt3a also increased the expression of a subset of endogenous Wnt target genes, and CARM1 was required for the Wnt-induced expression of these target genes and the accompanying dimethylation of arginine 17 of histone H3. Depletion of β-catenin from RKO cells diminished the Wnt-induced occupancy of CARM1 on a Wnt target gene, indicating that CARM1 is recruited to Wnt target genes through its interaction with β-catenin and contributes to transcriptional activation by mediating events (including histone H3 methylation) that are downstream from the actions of β-catenin. Therefore, CARM1 is an important positive modulator of Wnt/β-catenin transcription and neoplastic transformation, and may thereby represent a novel target for therapeutic intervention in cancers involving aberrantly activated Wnt/β-catenin signaling.