The proinflammatory cytokine interferon γ (IFNγ ) influences intestinal epithelial cell (IEC) homeostasis in a biphasic manner by acutely stimulating proliferation that is followed by sustained inhibition of proliferation despite continued mucosal injury. β-Catenin activation has been classically associated with increased IEC proliferation. However, we observed that IFNγ inhibits IEC proliferation despite sustained activation of Akt/β-catenin signaling. Here we show that inhibition of Akt/β-catenin-mediated cell proliferation by IFNγ is associated with the formation of a protein complex containing phosphorylated β-catenin 552 (pβ-cat552) and 14.3.3ζ. Akt1 served as a bimodal switch that promotes or inhibits β-catenin transactivation in response to IFNγ stimulation. IFNγ initially promotes β-catenin transactivation through Akt-dependent C-terminal phosphorylation of β-catenin to promote its association with 14.3.3ζ. Augmented β-catenin transactivation leads to increased Akt1 protein levels, and active Akt1 accumulates in the nucleus, where it phosphorylates 14.3.3ζ to translocate 14.3.3ζ/β-catenin from the nucleus, thereby inhibiting β-catenin transactivation and IEC proliferation. These results outline a dual function of Akt1 that suppresses IEC proliferation during intestinal inflammation.