In epithelial cells, p120 catenin (p120) localizes at cell–cell contacts and regulates adhesive function of the cadherin complex. In addition, p120 has been reported to localize in the nucleus, although the nuclear function of p120 is not fully understood. Here, we report the identification of Gli-similar 2 (Glis2) as a novel binding protein for p120. Glis2 is a Krüppel-like transcriptional repressor with homology to the Gli family, but its physiological function has not been well characterized. In this study, we show that coexpression of Glis2 and Src induces nuclear translocation of p120. Furthermore, p120 induces the C-terminal cleavage of Glis2, and this cleavage is further enhanced by Src. The cleaved form of Glis2 loses one of its five zinc finger domains, but it is still able to bind DNA. Functional studies in chick neural tube indicate that full-length Glis2 can affect neuronal differentiation, whereas the cleaved form requires coexpression of p120 to have a similar effect. These data indicate that p120 has additional novel functions in the nucleus together with Glis2.