Bcl-3 is an atypical member of the inhibitor of kappa light polypeptide gene enhancer in B-cells (IκB) family. It associates with p50/nuclear factor-κB1 (NF-κB1) and p52/NF-κB2 homodimers in nuclei where it modulates transcription in a context-dependent manner. A subset of B-cell tumors exhibits recurrent translocations of Bcl-3, resulting in overexpression. Elevated expression without translocations is also observed in various B-cell lymphomas and even some solid tumors. Here we investigated the role of Bcl-3 in azoxymethane/dextran sulfate sodium (AOM/DSS)-induced colon tumors, a mouse model for colitis-associated colorectal cancers in humans. Contrary to expectations, Bcl-3 suppressed colorectal tumor formation: Bcl-3-deficient mice were relatively protected from DSS-induced epithelial damage and developed more polyps after AOM/DSS treatment, although polyp size was unaffected. DSS-challenged mutant mice exhibited increased recruitment of myeloid-derived suppressor cells, consistent with protection of the epithelium. Loss of Bcl-3 in intestinal epithelial cells was sufficient to increase tumorigenesis. The added tumor burden in mutant mice was dependent on tumor necrosis factor-α (TNFα), a tumorigenic, NF-κB-mediated signaling pathway that was dampened by Bcl-3. These findings reveal a tumor-suppressive role for Bcl-3 in this inflammation-associated cancer model. Bcl-3 thus functions as a tumor promoter or suppressor, depending on the cellular and environmental context.