The list of transforming growth factor-beta (TGF-β)-related proteins in non-canonical TGF-β signaling is growing. Examples include receptor-Smads directing micro-RNA processing and inhibitory-Smads, e.g. Smad7, directing cell adhesion. Human skin grafts with fluorescently tagged melanoma cells revealed Smad7-expressing cells positioned themselves proximal to the dermal-epidermal junction and failed to form tumors, while control cells readily invaded and formed tumors within the dermis. Smad7 significantly inhibited β-catenin T41/S45 phosphorylation associated with degradation and induced a 4.5-fold increase in full-length N-cadherin. Cell adhesion assays confirmed a strong interaction between Smad7-expressing cells and primary dermal fibroblasts mediated via N-cadherin, while control cells were incapable of such interaction. Immunofluorescent analysis of skin grafts indicated N-cadherin homotypic interaction at the surface of both Smad7 cells and primary dermal fibroblasts, in contrast to control melanoma cells. We propose that Smad7 suppresses β-catenin degradation and promotes interaction with N-cadherin, stabilizing association with neighboring dermal fibroblasts, thus mitigating invasion.