Axam has been identified as a novel Axin-binding protein that inhibits the Wnt signaling pathway. We studied the molecular mechanism by which Axam stimulates the downregulation of beta-catenin. The C-terminal region of Axam has an amino acid sequence similar to that of the catalytic region of SENP1, a SUMO-specific protease (desumoylation enzyme). Indeed, Axam exhibited activity to remove SUMO from sumoylated proteins in vitro and in intact cells. The Axin-binding domain is located in the central region of Axam, which is different from the catalytic domain. Neither the Axin-binding domain nor the catalytic domain alone was sufficient for the downregulation of beta-catenin. An Axam fragment which contains both domains was able to decrease the level of beta-catenin. On substitution of Ser for Cys(547) in the catalytic domain, Axam lost its desumoylation activity. Further, this Axam mutant decreased the activity to downregulate beta-catenin. Although Axam strongly inhibited axis formation and expression of siamois, a Wnt-response gene, in Xenopus embryos, Axam(C547S) showed weak activities. These results demonstrate that Axam functions as a desumoylation enzyme to downregulate beta-catenin and suggest that sumoylation is involved in the regulation of the Wnt signaling pathway.