Paired box 3 (PAX3) is expressed early during embryonic development in spatially restricted domains in the nervous system and in some mesodermally-derived structure. In recent years, it is found to be overexpressed in different types of cancer tissues and cell lines including glioblastomas, neuroblastomas, melanomas, rhabdomyosarcomas, Ewing sarcomas and gastric cancers, suggesting that it may function as an oncogene in these cancers. However, its role in thyroid cancer remains totally unclear. The aim of this study was to explore the functions and related molecular mechanism of PAX3 in thyroid tumorigenesis. Using quantitative RT-PCR (qRT-PCR) and Methylation-specific PCR (MSP) assays, we demonstrated that PAX3 was frequently down-regulated by promoter methylation in both primary thyroid cancer tissues and thyroid cancer cell lines. In addition, our data showed that ectopic expression of PAX3 dramatically inhibited thyroid cancer cell proliferation, colony formation, migration and invasion, induced cell cycle arrest and apoptosis and retarded tumorigenic potential in nude mice. Mechanically, PAX3 exerted its tumor suppressor function by inhibiting the activity of major signaling pathways including the phosphatidylinositol-3-kinase (PI3K)/Akt and MAPK/Erk pathways, and enhancing expression and activity of transcription factor FOXO3a. Altogether, our findings provided insight into the role of PAX3 as a novel functional tumor suppressor in thyroid cancer through modulating the activities of PI3K/Akt and MAPK signaling pathways and transcription factor FOXO3a, and demonstrated that epigenetic alterations such as promoter methylation should be a major mechanism of PAX3 inactivation in this cancer.