Celgene Corporation, which owns rights to the drug, said the National Cancer Institute (NCI) would sponsor the tests.
Thalidomide, originally intended for morning sickness and as a sedative for pregnant women, was banned worldwide in the early 1960s after 12,000 babies were born with no limbs or flipperlike arms and legs, serious facial deformities, and defective organs.
But the drug was approved by regulators last July to treat a complication from leprosy, and is making a comeback that extends well beyond that rare disease.
Thalidomide, marketed under the name Thalomid, has shown good results against brain tumors and multiple myeloma, one of the deadliest forms of leukemia, Celgene said.
Now, the drug will be tested against colon cancer, says Steve Libutti of the National Cancer Institute.
"It prevents the tumors from growing larger or some cases it's actually been shown to decrease the size of tumors," he says.
It's believed that thalidomide does this by blocking formation of blood vessels a tumor needs to feed itself.
Colon cancer is the third most common form of malignant cancer in the United States, behind lung and breast cancer in women and lung and prostate cancer in men.
The American Cancer Society calls it the second leading cause of cancer deaths nationwide, and predicts that 140,000 new cases of colon cancer will be diagnosed this year.
Celgene and the U.S. Food and Drug Administration (FDA) developed severe restrictions for using and testing the drug, to ensure that women who might become pregnant are not exposed.