Fetal prostate development is initiated by androgens and patterned by androgen dependent and independent signals. How these signals integrate to control epithelial cell differentiation and prostatic bud patterning is not fully understood. To test the role of beta-catenin (Ctnnb1) in this process, we used a genetic approach to conditionally delete or stabilize Ctnnb1 in urogenital sinus (UGS) epithelium from which the prostate derives. Two opposing mechanisms of action were revealed. By deleting Ctnnb1, we found it is required for separation of UGS from cloaca, emergence or maintenance of differentiated UGS basal epithelium and formation of prostatic buds. By genetically inducing a patchy subset of UGS epithelial cells to express excess CTNNB1, we found its excess abundance increases Bmp expression and leads to a global impairment of prostatic bud formation. Addition of NOGGIN partially restores prostatic budding in UGS explants with excess Ctnnb1. These results indicate a requirement for Ctnnb1 in UGS basal epithelial cell differentiation, prostatic bud initiation and bud spacing and suggest some of these actions are mediated in part through activation of BMP signaling.