The Wnt signalling pathway is pivotal in normal and malignant development. A key effector is Armadillo (Arm)/β-catenin, which functions with TCF to transcribe Wnt target-genes. Here, we report the discovery of pygopus (pygo), whose mutant phenotypes specifically mimic loss-of-Wingless (Wg) signalling. pygo is required for dTCF-mediated transcription, but not for Wg-induced stabilization of Arm. Pygo is a nuclear protein that is found in a complex with Arm in vivo. Humans possess two Pygo proteins, both of which are required for TCF-mediated transcription in colorectal cancer cells. The presence of a PHD domain implicates Pygo proteins in a chromatin-related function, and we propose that they mediate chromatin access to TCF or Arm/β-catenin.