Signaling by the Wnt family of secreted proteins plays an important role in animal development and is often misregulated in carcinogenesis. Wnt signal transduction is controlled by the rate of degradation of beta-catenin by a complex of proteins including glycogen synthase kinase 3 (GSK3), adenomatous polyposis coli, and Axin. Dishevelled is required for Wnt signal transduction, and its activation results in stabilization of beta-catenin. However, the biochemical events underlying this process remain largely unclear. Here we show that Xenopus Dishevelled (Xdsh) interacts with a Xenopus Axin-related protein (XARP). This interaction depends on the presence of the Dishevelled-Axin (DIX) domains in both XARP and Xdsh. Moreover, the same domains are essential for signal transduction through Xdsh. Finally, our data point to a possible mechanism for signal transduction, in which Xdsh prevents beta-catenin degradation by displacing GSK3 from its complex with XARP.