How signaling cascades influence gene regulation at the level of chromatin modification is not well understood. We studied this process using the Wingless/Wnt pathway in Drosophila. When cells sense Wingless ligand, Armadillo (the fly beta-catenin) becomes stabilized and translocates to the nucleus, where it binds to the sequence-specific DNA binding protein TCF to activate transcription of target genes. Here, we show that Wingless signaling induces TCF and Armadillo recruitment to a select subset of TCF binding site clusters that act as Wingless response elements. Despite this localized TCF/Armadillo recruitment, histones are acetylated over a wide region (up to 30 kb) surrounding the Wingless response elements in response to pathway activation. This widespread histone acetylation occurs independently of transcription. In contrast to Wingless targets, other active genes not regulated by the pathway display sharp acetylation peaks centered on their core promoters. Widespread acetylation of Wingless targets is dependent upon CBP, a histone acetyltransferase known to bind to Armadillo and is correlated with activation of target gene expression. These data suggest that pathway activation induces localized recruitment of TCF/Armadillo/CBP to Wingless response elements, leading to widespread histone acetylation of target loci prior to transcriptional activation.