The standard model of Wnt signaling specifies that after receipt of a Wnt ligand at the membranous receptor complex, downstream mediators inhibit a cytoplasmic destruction complex, allowing β-catenin to accumulate in the cytosol and nucleus and co-activate Wnt target genes. Unexpectedly, shortly after Wnt treatment, we detected the dephosphorylated form of β-catenin at the plasma membrane, where it displayed a discontinuous punctate labeling. This pool of β-catenin could only be detected in E-cadherin^–/– cells, because in E-cadherin^+/+ cells Wnt-induced, membranous β-catenin was concealed by a constitutive junctional pool. Wnt-signaling-dependent dephosphorylated β-catenin colocalized at the plasma membrane with two members of the destruction complex – APC and axin – and the activated Wnt co-receptor LRP6. β-catenin induced through the Wnt receptor complex was significantly more competent transcriptionally than overexpressed β-catenin, both in cultured cells and in early Xenopus embryos. Our data reveal a new step in the processing of the Wnt signal and suggest regulation of signaling output beyond the level of protein accumulation.