Wnt/β-catenin signal transduction directs intestinal stem cell (ISC) proliferation during homeostasis. Hyperactivation of Wnt signaling initiates colorectal cancer, which most frequently results from truncation of the tumor suppressor Adenomatous polyposis coli (APC). The β-catenin-TCF transcription complex activates both the physiological expression of Wnt target genes in the normal intestinal epithelium and their aberrantly increased expression in colorectal tumors. Whether mechanistic differences in the Wnt transcription machinery drive these distinct levels of target gene activation in physiological versus pathological states remains uncertain, but is relevant for the design of new therapeutic strategies. Here, using a Drosophila model, we demonstrate that two evolutionarily conserved transcription cofactors, Earthbound (Ebd) and Erect wing (Ewg), are essential for all major consequences of Apc1 inactivation in the intestine: the hyperactivation of Wnt target gene expression, excess number of ISCs, and hyperplasia of the epithelium. In contrast, only Ebd, but not Ewg, mediates the Wnt-dependent regulation of ISC proliferation during homeostasis. Therefore, in the adult intestine, Ebd acts independently of Ewg in physiological Wnt signaling, but cooperates with Ewg to induce the hyperactivation of Wnt target gene expression following Apc1 loss. These findings have relevance for human tumorigenesis, as Jerky (JRK/JH8), the human Ebd homolog, promotes Wnt pathway hyperactivation and is overexpressed in colorectal, breast, and ovarian cancers. Together, our findings reveal distinct requirements for Ebd and Ewg in physiological Wnt pathway activation versus oncogenic Wnt pathway hyperactivation following Apc1 loss. Such differentially utilized transcription cofactors may offer new opportunities for the selective targeting of Wnt-driven cancers.