Canonical Wnt signaling converts the TCF/LEF transcription factor from repressor to activator by increasing nuclear levels of its coactivator, beta-catenin. A striking exception had been reported for Wnt-induced endoderm formation during C. elegans embryogenesis. It has long been believed that transcriptional activation of Wnt target genes in the endoderm precursor occurred due to a lowering of nuclear levels of the worm TCF/LEF protein, POP-1, effectively alleviating POP-1 repressive activity. Contrary to this model, we demonstrate here that POP-1 directly activates Wnt target genes in the endoderm precursor. Wnt converts POP-1 from a repressor to an activator, and this conversion requires that POP-1 nuclear levels be lowered in the endoderm precursor. We propose that the balance between TCF/LEF and coactivator(s), achieved by elevating coactivator levels (the canonical pathway) and/or reducing TCF/LEF levels (worm endoderm), determines Wnt signal strength.