Wingless/Wnt signalling directs cell-fate choices during embryonic dev
elopment(1,2). Inappropriate reactivation of the pathway causes cancer
(3-5). In Drosophila, signal transduction from Wingless stabilizes cyt
osolic Armadillo(1), which then forms a bipartite transcription factor
with the HMG-box protein Drosophila Tcf (dTcf) and activates expressi
on of Wingless-responsive genes(6-8) Here we report that in the absenc
e of Armadillo, dTcf acts as a transcriptional repressor of Wingless-r
esponsive genes, and we show that Groucho acts as a corepressor in thi
s process. Reduction of dTcf activity partially suppresses wingless an
d armadillo mutant phenotypes, leading to derepression of Wingless-res
ponsive genes. Furthermore, overexpression of wild-type dTcf enhances
the phenotype of a weak wingless allele. Finally, mutations in the Dro
sophila groucho gene also suppress wingless and armadillo mutant pheno
types as Groucho physically interacts with dTcf and is required for it
s full repressor activity.