The Wnt signaling pathway controls stem cell identity in the intestinal epithelium and in many other adult organs. The transcription factor Ascl2 (a Wnt target gene) is a master regulator of intestinal stem cell identity. It is unclear how the continuous Wnt gradient along the crypt axis is translated into discrete expression of Ascl2 and discrete specification of stem cells at crypt bottoms. We show that (1) Ascl2 is regulated in a direct autoactivatory loop, leading to a distinct on/off expression pattern, and (2) Wnt/R-spondin can activate this regulatory loop. This mechanism interprets the Wnt levels in the intestinal crypt and translates the continuous Wnt signal into a discrete Ascl2 "on" or "off" decision. In turn, Ascl2, together with β-catenin/Tcf, activates the genes fundamental to the stem cell state. In this manner, Ascl2 forms a transcriptional switch that is both Wnt responsive and Wnt dependent to define stem cell identity.