BTG3 (B-cell translocation gene 3) is a p53 target that also binds and inhibits E2F1. Although it connects two major growth-regulatory pathways functionally and is downregulated in human cancers, whether and how BTG3 acts as a tumor suppressor remain largely uncharacterized. Here we present evidence that BTG3 binds and suppresses AKT, a kinase frequently deregulated in cancers. BTG3 ablation results in increased AKT activity that phosphorylates and inhibits glycogen synthase kinase 3β. Consequently, we also observed elevated β-catenin/T-cell factor activity, upregulation of mesenchymal markers, and enhanced cell migration. Consistent with these findings, BTG3 overexpression suppressed tumor growth in mouse xenografts, and was associated with diminished AKT phosphorylation and reduced β-catenin in tissue specimens. Significantly, a short BTG3-derived peptide was identified, which recapitulates these effects in vitro and in cells. Thus, our study provides mechanistic insights into a previously unreported AKT inhibitory pathway downstream of p53. The identification of an AKT inhibitory peptide also unveils a new avenue for cancer therapeutics development.