Wnt target gene activation in C. elegans requires simultaneous elevation of β-catenin/SYS-1 and reduction of TCF/POP-1 nuclear levels within the same signal-responsive cell. SYS-1 binds to the conserved N-terminal β-catenin-binding domain (CBD) of POP-1 and functions as a transcriptional co-activator. Phosphorylation of POP-1 by LIT-1, the C. elegans Nemo-like kinase homolog, promotes POP-1 nuclear export and is the main mechanism by which POP-1 nuclear levels are lowered. We present a mechanism whereby SYS-1 and POP-1 nuclear levels are regulated in opposite directions, despite the fact that the two proteins physically interact. We show that the C terminus of POP-1 is essential for LIT-1 phosphorylation and is specifically bound by the diverged β-catenin WRM-1. WRM-1 does not bind to the CBD of POP-1, nor does SYS-1 bind to the C-terminal domain. Furthermore, binding of WRM-1 to the POP-1 C terminus is mutually inhibitory with SYS-1 binding at the CBD. Computer modeling provides a structural explanation for the specificity in WRM-1 and SYS-1 binding to POP-1. Finally, WRM-1 exhibits two independent and distinct molecular functions that are novel for β-catenins: WRM-1 serves both as the substrate-binding subunit and an obligate regulatory subunit for the LIT-1 kinase. Mutual inhibitory binding would result in two populations of POP-1: one bound by WRM-1 that is LIT-1 phosphorylated and exported from the nucleus, and another, bound by SYS-1, that remains in the nucleus and transcriptionally activates Wnt target genes. These studies could provide novel insights into cancers arising from aberrant Wnt activation.