Protein phosphatase-2A (PP2A) is a multisubunit serine/threonine phosphatase involved in intracellular signaling, gene regulation, and cell cycle progression. Different subunits of PP2A bind to Axin and Adenomatous Polyposis Coli, components of the Wnt signal transduction pathway. Using early Xenopus embryos, we studied how PP2A functions in Wnt signal transduction. The catalytic subunit of PP2A (PP2A-C) potentiated secondary axis induction and Siamois reporter gene activation by Dishevelled, a component of the Wnt pathway, indicating a positive regulatory role of this enzyme in Wnt signaling. In contrast, small t antigen, an antagonist of PP2A-C, inhibited Dishevelled-mediated signal transduction, as did the regulatory PP2A-B'ε subunit, consistent with the requirement of PP2A function in this pathway. Although Wnt signaling is thought to occur via regulation of β-catenin degradation, PP2A-C did not significantly affect β-catenin stability. Moreover, the pathway activated by a stabilized form of β-catenin was sensitive to PP2A-C and its inhibitors, suggesting that PP2A-C acts downstream of β-catenin. Because previous work has suggested that PP2A can act upstream of β-catenin, we propose that PP2A regulates the Wnt pathway at multiple levels.