p120 catenin interacts with E-cadherin and functions at adherens junctions; it can also modulate gene expression in the nucleus. Lee et al. reveal that nuclear p120 catenin binds to REST and Co-REST, components of a transcriptional repressor complex. Depleting mouse embryonic stem (ES) cells of p120 catenin enhanced REST–DNA binding and decreased REST target gene expression; overexpressing p120 catenin had the opposite effect. REST–Co-REST is thought to inhibit neural stem cell differentiation. Overexpression of p120 catenin in mouse ES cells accelerated their differentiation and depletion of p120 catenin correlated with a decrease in the expression of REST–CoREST gene targets that are involved in neural development. Thus, p120 catenin may inhibit REST–Co-REST to promote neural differentiation. Further data suggest a model in which E-cadherin might regulate the effects of p120 catenin on REST–Co-REST by regulating the level of nuclear p120 catenin.