Mutations in human Adenomatous Polyposis Coli (APC) gene are associated with both familial and sporadic colorectal tumors. APC is known to down regulate β-catenin levels, a transducer of Wnt signaling. The aim of this study is to provide transgenic Drosophila expressing either full-length or truncated forms of human APC (hAPC) protein and methods for using them in functional genomics and drug screening. Consistent with its biochemical properties, targeted expression of either full-length hAPC or its β-catenin binding domain alone negatively regulated the function of the β-catenin homologue, Armadillo (Arm) and thereby, inhibited Wnt/Wg signaling during fly development. hAPC inhibited Arm function even in the absence of GSK-3β activity, although the latter was required to mediate the degradation of Arm. Consistent with this, hAPC suppressed the phenotypes induced by the over-expression of degradation-resistant forms of Arm. Subsequently, using hAPC-induced eye phenotypes as the assay in a suppressor-enhancer screen, we have identified two new loci in Drosophila, which modulate Wnt/Wg signaling. In addition, an anti-colon cancer drug, indomethacin, specifically enhanced hAPC-induced phenotypes.