Tumour budding or dedifferentiation at the invasive margin of colorectal cancer (CRC) is an important prognostic marker and linked mechanistically to dysregulation of Wnt pathway signalling. Since budding is observed in only 40% of CRCs, we hypothesized that Wnt pathway dysregulation may be a necessary but insufficient explanation for budding and that buds may be destroyed selectively by tumour immune mechanisms. Twenty potential markers of tumour budding were evaluated in tissue microarrays (TMAs) obtained from the main tumour body of 1164 DNA mismatch repair-proficient CRCs and the findings were correlated with tumour budding, lymphocytic infiltration and survival. Loss of expression of E-cadherin and APAF-1 were independent predictors of budding (sensitivity 70.3% and specificity 48.2% when one or the other was lost). Peritumoural lymphocytes (PTLs) were observed more frequently in CRCs with loss of either E-cadherin or APAF-1 that were budding-negative. PTLs and tumour-infiltrating lymphocytes (TILs) were strongly correlated. The absence of TILs increased the adverse prognostic impact of E-cadherin and APAF-1 loss. Co-occurrence of E-cadherin loss, APAF-1 loss and low TIL counts in CRCs was an independent prognostic factor. The findings were verified in whole tissue sections from 88 CRCs with known KRAS mutation status (which was not associated with budding). Loss of E-cadherin and APAF-1 within the main body of CRCs are independent predictors of tumour budding. The prognostic benefit of lymphocytic infiltration may be explained by the immune destruction of budding cells. Copyright © 2007 Pathological Society of Great Britain and Ireland. Published by John Wiley & Sons, Ltd.