The cytoplasmic proteins beta-catenin of vertebrates and armadillo of Drosophila have two functions: they link the cadherin cell-adhesion molecules to the cytoskeleton, and they participate in the wnt/wingless signal pathway. Here we show, in a yeast two-hybrid screen, that the architectural transcription factor LEF-1 (for lymphoid enhancer-binding factor) interacts with beta-catenin. In mammalian cells, coexpressed LEF-1 and beta-catenin form a complex that is localized to the nucleus and can be detected by immunoprecipitation. Moreover, LEF-1 and beta-catenin form a ternary complex with DNA that splays an altered DNA bend. Microinjection of LEF-1 into XenoPus embryos induces axis duplication, which is augmented by interaction with beta-catenin. Thus beta-catenin regulates gene expression by direct interaction with transcription factors such as LEF-1, providing a molecular mechanism for the transmission of signals, from cell-adhesion components or wnt protein to the nucleus.