beta-Catenin stabilizes the cadherin cell adhesion complex but, as a component of the Wnt/Wg signaling pathway, also controls gene expression by forming a heterodimer with a transcription factor of the LEF-TCF family. We demonstrate that the substrate adhesion molecule fibronectin is a direct target of Wnt/Wg signaling. Nuclear depletion of beta-catenin following cadherin transfection in Xenopus fibroblasts resulted in downregulation of fibronectin expression which was restored by activating the Wnt/Wg signaling cascade via LiCl treatment or transfection of either Xwnt-8 or beta-catenin. We isolated the Xenopus fibronectin gene (FN) promoter and found four putative LEF-TCF binding sites. By comparing the activities of different fibronectin gene reporter constructs in fibroblasts and cadherin transfectants, the LEF-TCF site at position -368 was identified as a Wnt/Wg response element. LEF-1-related proteins were found in nuclei of the fibroblasts but were absent in a kidney epithelial cell line. Consistent with the lack of these transcription factors, the FN promoter was silent in the epithelial cells but was activated upon transfection of LEF-1. Wild-type Xenopus Tcf-3 (XTcf-3) was unable to activate FN promoter reporter constructs, while a mutant lacking the groucho binding region behaved like LEF-1. In contrast to XTcf-3, LEF-1 does not interact with groucho proteins, which turn TCFs into activators or repressors (J. Roose, M. Molenaar, J. Hurenkamp, J. Peterson, H. Brantjes, P. Moerer, M. van de Wetering, O. Destreé, and H. Clevers, Nature 395:608-612, 1998). Together these data provide evidence that expressing LEF-1 enables fibroblasts, in contrast to epithelial cells, to respond to the Wnt/Wg signal via beta-catenin in stimulating fibronectin gene transcription. Our findings further promote the idea that due to its dual function, beta-catenin regulates the balance between cell-cell and cell-substrate adhesion.