p120 plays an essential role in cadherin turnover. The molecular mechanism involved, however, remains only partially understood. Here, using a gene trap targeting technique, we replaced the genomic sequence of p120 with HA-tagged p120 cDNA in mouse teratocarcinoma F9 cells. In the p120 knock-in (p120KI) cells, we found that the expression level of p120 was severely reduced and that the expression level of other components of the cadherin-catenin complex was also reduced. The stable expression of various p120 mutants in p120KI cells revealed that the armadillo repeat domain of p120 is sufficient to restore the expression level of E-cadherin. In p120KI cells, internalized E-cadherin was frequently detected as large aggregates. Transient expression of wild-type p120 and mutant p120 lacking the N-terminal region induced both relocalization of E-cadherin at the cell-cell boundaries and the disappearance of cytoplasmic E-cadherin aggregates. Transient expression of mutant p120 lacking the C-terminal region, however, only induced a small increase in E-cadherin signals at the cell-cell boundary. In these cells, the cytoplasmic E-cadherin signals became brighter and the expressed mutant p120 was incorporated in the E-cadherin aggregates. These results suggested the novel function of the p120 C-terminal region in regulating the trafficking of cytoplasmic E-cadherin.