Activation of the Wnt signaling cascade provides key signals during development and in disease. Here we provide evidence, by designing a Wnt receptor with ligand-independent signaling activity, that physical proximity of Arrow (LRP) to the Wnt receptor Frizzled-2 triggers the intracellular signaling cascade. We have uncovered a branch of the Wnt pathway in which Armadillo activity is regulated concomitantly with the levels of Axin protein. The intracellular pathway bypasses Gsk3beta/Zw3, the kinase normally required for controlling beta-catenin/Armadillo levels, suggesting that modulated degradation of Armadillo is not required for Wnt signaling. We propose that Arrow (LRP) recruits Axin to the membrane, and that this interaction leads to Axin degradation. As a consequence, Armadillo is no longer bound by Axin, resulting in nuclear signaling by Armadillo.