The stabilization of beta-catenin is a key regulatory step during cell fate changes and transformations to tumor cells. Several interacting proteins, including Axin, APC, and the protein kinase GSK-3beta are implicated in regulating beta-catenin phosphorylation and its subsequent degradation. Wnt signaling stabilizes beta-catenin, but it was not clear whether and how Wnt signaling regulates the beta-catenin complex. Here we show that Axin is dephosphorylated in response to Wnt signaling. The dephosphorylated Axin binds beta-catenin less efficiently than the phosphorylated form. Thus, Wnt signaling lowers Axin's affinity for beta-catenin, thereby disengaging beta-catenin from the degradation machinery.