The Wnt signalling system controls many fundamental processes during animal development and its deregulation has been causally linked to colorectal cancer. Transduction of Wnt signals entails the association of beta-catenin with nuclear TCF DNA-binding factors and the subsequent activation of target genes. Using genetic assays in Drosophila, we have recently identified a presumptive adaptor protein, Legless (Lgs), that binds to beta-catenin and mediates signalling activity by recruiting the transcriptional activator Pygopus (Pygo). Here, we characterize the beta-catenin/Lgs interaction and show: (1) that it is critically dependent on two acidic amino acid residues in the first Armadillo repeat of beta-catenin; (2) that it is spatially and functionally separable from the binding sites for TCF factors, APC and E-cadherin; (3) that it is required in endogenous as well as constitutively active forms of beta-catenin for Wingless signalling output in Drosophila; and (4) that in its absence animals develop with the same phenotypic consequences as animals lacking Lgs altogether. Based on these findings, and because Lgs and Pygo have human homologues that can substitute for their Drosophila counterparts, we infer that the beta-catenin/Lgs binding site may thus serve as an attractive drug target for therapeutic intervention in beta-catenin-dependent cancer progression.