Wnt/Wingless signaling controls many fundamental processes during animal development. Wnt transduction is mediated by the association of beta-catenin with nuclear TCF DNA binding factors. Here we report the identification of two segment polarity genes in Drosophila, legless (lgs), and pygopus (pygo), and we show that their products are required for Wnt signal transduction at the level of nuclear beta-catenin. Lgs encodes the homolog of human BCL9, and we provide genetic and molecular evidence that these proteins exert their function by physically linking Pygo to beta-catenin. Our results suggest that the recruitment of Pygo permits beta-catenin to transcriptionally activate Wnt target genes and raise the possibility that a deregulation of these events may play a causal role in the development of B cell malignancies.