Paneth cells are a highly specialized population of intestinal epithelial cells located in the crypt adjacent to Lgr5(+) stem cells, from which they differentiate through a process that requires downregulation of the Notch pathway. Their ability to store and release antimicrobial peptides protects the host from intestinal pathogens and controls intestinal inflammation. Here, we show that PKCλ/ι is required for Paneth cell differentiation at the level of Atoh1 and Gfi1, through the control of EZH2 stability by direct phosphorylation. The selective inactivation of PKCλ/ι in epithelial cells results in the loss of mature Paneth cells, increased apoptosis and inflammation, and enhanced tumorigenesis. Importantly, PKCλ/ι expression in human Paneth cells decreases with progression of Crohn's disease. Kaplan-Meier survival analysis of colorectal cancer (CRC) patients revealed that low PRKCI levels correlated with significantly worse patient survival rates. Therefore, PKCλ/ι is a negative regulator of intestinal inflammation and cancer through its role in Paneth cell homeostasis.