Degradation of cytosolic beta-catenin by the APC/Axin1 destruction complex represents the key regulated step of the Wnt pathway. It is incompletely understood how the Axin1 complex exerts its Wnt-regulated function. Here, we examine the mechanism of Wnt signaling under endogenous levels of the Axin1 complex. Our results demonstrate that beta-catenin is not only phosphorylated inside the Axin1 complex, but also ubiquinated and degraded via the proteasome, all within an intact Axin1 complex. In disagreement with current views, we find neither a disassembly of the complex nor an inhibition of phosphorylation of Axin1-bound beta-catenin upon Wnt signaling. Similar observations are made in primary intestinal epithelium and in colorectal cancer cell lines carrying activating Wnt pathway mutations. Wnt signaling suppresses beta-catenin ubiquitination normally occurring within the complex, leading to complex saturation by accumulated phospho-beta-catenin. Subsequently, newly synthesized beta-catenin can accumulate in a free cytosolic form and engage nuclear TCF transcription factors.