Aberrant Wnt/beta-catenin signaling following loss of the tumor suppressor adenomatous polyposis coli (APC) is thought to initiate colon adenoma formation. Using zebrafish and human cells, we show that homozygous loss of APC causes failed intestinal cell differentiation but that this occurs in the absence of nuclear beta-catenin and increased intestinal cell proliferation. Therefore, loss of APC is insufficient for causing beta-catenin nuclear localization. APC mutation-induced intestinal differentiation defects instead depend on the transcriptional corepressor C-terminal binding protein-1 (CtBP1), whereas proliferation defects and nuclear accumulation of beta-catenin require the additional activation of KRAS. These findings suggest that, following APC loss, CtBP1 contributes to adenoma initiation as a first step, whereas KRAS activation and beta-catenin nuclear localization promote adenoma progression to carcinomas as a second step. Consistent with this model, human FAP adenomas showed robust upregulation of CtBP1 in the absence of detectable nuclear beta-catenin, whereas nuclear beta-catenin was detected in carcinomas.