Hepatic competence, specification, and liver bud expansion during development depend on precise temporal modulation of the Wnt/β-catenin signaling. Also, loss- and gain-of-function studies have revealed pleiotropic roles of β-catenin in proliferation and hepatocyte and biliary epithelial cell differentiation, but precise mechanisms remain unknown. Here we utilize livers from different stages of murine development to determine β-catenin signaling and downstream targets. Although during early liver development full-length β-catenin is the predominant form, at late stages, where full-length β-catenin localizes to developing biliary epithelial cells only, a 75-kDa truncated β-catenin species is the principal form localizing at the membrane and in the nucleus of differentiating hepatocytes. The truncated species lacks 95 N-terminal amino acids and is transcriptionally active. Our evidence points to proteolytic cleavage of β-catenin by calpain as the mechanism of truncation in cell-free and cell-based assays. Intraperitoneal injection of a short term calpain inhibitor to timed pregnant female mice abrogated β-catenin truncation in the embryonic livers. RNA-seq revealed a unique set of targets transcribed in cells expressing truncated versus full-length β-catenin, consistent with different functionalities. A further investigation using N- and C-terminal-specific β-catenin antibodies on human hepatoblastomas revealed a correlation between full-length versus truncated β-catenin and differentiation status, with embryonal hepatoblastomas expressing full-length β-catenin and fetal hepatoblastomas expressing β-catenin lacking its N terminus. Thus we conclude that calpain-mediated cleavage of β-catenin plays a role in regulating hepatoblast differentiation in mouse and human liver, and the presence of the β-catenin N terminus correlates with differentiation status in hepatoblastomas.