In the small intestine, the progeny of stem cells migrate in precise patterns. Absorptive, enteroendocrine, and goblet cells migrate toward the villus while Paneth cells occupy the bottom of the crypts. We show here that β-catenin and TCF inversely control the expression of the EphB2/EphB3 receptors and their ligand ephrin-B1 in colorectal cancer and along the crypt-villus axis. Disruption of EphB2 and EphB3 genes reveals that their gene products restrict cell intermingling and allocate cell populations within the intestinal epithelium. In EphB2/EphB3 null mice, the proliferative and differentiated populations intermingle. In adult EphB3^−/− mice, Paneth cells do not follow their downward migratory path, but scatter along crypt and villus. We conclude that in the intestinal epithelium β-catenin and TCF couple proliferation and differentiation to the sorting of cell populations through the EphB/ephrin-B system.