beta-catenin mediates Wnt signaling by acting as the essential co-activator for TCF transcription factors. Wnt signaling increases the half-life and therefore the absolute level of beta-catenin in responding cells. The current model states that these changes in beta-catenin stability set the threshold for Wnt signaling. However, we find that pharmacological inhibition of proteasome activity by ALLN leads to accumulation of cytosolic beta-catenin but not to increased TCF-mediated transcription. In addition, in temperature-sensitive ubiquitylation mutant CHO cells inhibition of ubiquitylation increases beta-catenin levels, but does not induce transcriptional activation of TCF reporter genes. Using an antibody specific for beta-catenin dephosphorylated at residues Ser37 and Thr41, we show that Wnt signals specifically increase the levels of dephosphorylated beta-catenin, whereas ALLN does not. We conclude that changes in the phosphorylation status of the N-terminus of beta-catenin that occur upon Wnt signaling independently affect the signaling properties and half-life of beta-catenin. Hence, Wnt signals are transduced via N-terminally dephosphorylated beta-catenin.