The central regulator of the Wnt/β-catenin pathway is the Axin/APC/GSK3β destruction complex (DC), which in unstimulated conditions targets cytoplasmic β-catenin for degradation. How Wnt activation inhibits the DC to permit β-catenin-dependent signaling remains controversial, in part because the DC and its regulation have never been observed in vivo. Using Bimolecular Fluorescence Complementation (BiFC) methods, we have now analyzed the activity of the DC under near-physiological conditions in Drosophila. By focusing on well-established patterns of Wnt/Wg signaling in the developing Drosophila wing, we have defined the sequence of events by which activated Wnt receptors induce a conformational change within the DC, resulting in modified Axin-GSK3β interactions that prevent β-catenin degradation. Surprisingly, the nucleus is surrounded by active DCs, which principally control β-catenin's degradation and thereby nuclear access. These DCs are inactivated and removed upon Wnt signal transduction. These results suggest a novel mechanistic model for dynamic Wnt signaling transduction in vivo.