Contactin-1 has been shown to promote cancer metastasis. However, the underlying mechanisms remain unclear. We report here that knockdown of contactin-1 in A549 lung cancer cells reduced A549 cell invasion and the cell's ability to grow in soft agar without affecting cell proliferation. Reduction of contactin-1 resulted in upregulation of E-cadherin, consistent with E-cadherin being inhibitive of cancer cell invasion. In an effort to investigate the mechanisms whereby contactin-1 reduces E-cadherin expression, we observed that contactin-1 plays a role in AKT activation, as knockdown of contactin-1 attenuated AKT activation. Additionally, inhibition of AKT activation significantly enhanced E-cadherin expression, an observation that mimics the situation observed in contactin-1 knockdown, suggesting that activation of AKT plays a role in contactin-1-mediated downregulation of E-cadherin. In addition, we were able to show that knockdown of contactin-1 did not further reduce A549 cell's invasion ability, when AKT activation was inhibited by an AKT inhibitor. To further support our findings, we overexpressed CNTN-1 in two CNTN-1 null breast cancer cell lines expressing E-cadherin. Upon overexpression, CNTN-1 reduced E-cadherin levels in one cell line and increased AKT activation in the other. Furthermore, in our study of 63 primary lung cancers, we observed 65% of primary lung cancers being contactin-1 positive and in these carcinomas, 61% were E-cadherin negative. Collectively, we provide evidence that contactin-1 plays a role in the downregulation of E-cadherin in lung cancer and that AKT activation contributes to this process. In a study of mechanisms responsible for contactin-1 to activate AKT, we demonstrated that knockdown of CNTN-1 in A549 cells did not enhance PTEN expression but upregulated PHLPP2, a phosphatase that dephosphorylates AKT. These observations thus suggest that contactin-1 enhances AKT activation in part by preventing PHLPP2-mediated AKT dephosphrorylation.