The phenotypes caused by mutations in Wnt genes suggest that their gene products are involved in cell-to-cell communication. Wnt genes indeed encode secreted molecules, but soluble active Wnt protein has not been found. We have developed a novel cell culture assay for the Drosophila Wnt gene wingless, using a Drosophila imaginal disc cell line (cl-8; ref. 13), and measured effects on the adherens junction protein armadillo, a known genetic target of wingless. Transfection of a temperature-sensitive wingless complementary DNA into cl-8 cells increases the levels of the armadillo protein. The wingless protein does not affect the rate of synthesis of armadillo, but leads to increased stability of an otherwise rapidly decaying armadillo protein. The wingless protein in the extracellular matrix and soluble medium from donor cells also increases the levels of armadillo protein. The protein in the medium acts fast and is inhibited by an antibody to wingless protein, demonstrating that Wnt products can act as soluble extracellular signalling molecules.