Colorectal cancer (CRC) is the third most common cancer worldwide, with more than 1.3 million new cases and 690 000 deaths each year. In China, the incidence of CRC has increased dramatically due to dietary and lifestyle changes, to become the fifth leading cause of cancer-related death. Here, we performed whole-exome sequencing in 50 rectal cancer cases among the Chinese population as part of the International Cancer Genome Consortium research project. Frequently mutated genes and enriched pathways were identified. Moreover, a previously unreported gene, PCDHB3, was found frequently mutated in 5.19% cases. Additionally, PCDHB3 expression was found decreased in 81.6% of CRC tissues and all eight CRC cell lines tested. Low expression and cytoplasmic localization of PCDHB3 predict poor prognosis in advanced CRC. Copy number decrease and/or CpG island hypermethylation contributes to the pervasive decreased expression of PCDHB3. PCDHB3 inhibits CRC cell proliferation, migration, and epithelial-mesenchymal transition. The tumor-suppressive effects of PCDHB3 are partially due to inhibition of NF-kappa B transcriptional activity through K63 deubiquitination of p50 at lysine 244/252, which increases the binding affinity of inactive p50 homodimer to kappa B DNA, resulting in competitive inhibition of the transcription of NF-kappa B target genes by p65 dimers. Our study identified PCDHB3 as a novel tumor suppressor in CRC via inhibition of the NF-kappa B pathway, and its expression and localization may serve as prognostic markers for advanced CRC. Copyright (C) 2018 Pathological Society of Great Britain and Ireland. Published by John Wiley & Sons, Ltd.