Drosophila melanogaster Armadillo and its vertebrate homolog beta-catenin play multiple roles during development. Both are components of cell-cell adherens junctions and both transduce Wingless (Wg)/Wnt intercellular signals. The current model for Wingless signaling proposes that Armadillo binds the DNA-binding protein dTCF, forming a bipartite transcription factor that activates Wingless-responsive genes. In this model, Armadillo's C-terminal domain is proposed to serve an essential role as a transcriptional activation domain. In Xenopus, however, overexpression of C-terminally truncated beta-catenin activates Wnt signaling, suggesting that the C-terminal domain might not be essential. We reexamined the function of Armadillo's C terminus in Wingless signaling. We found that C-terminally truncated mutant Armadillo has a deficit in Wg-signaling activity, even when corrected for reduced protein levels. However, we also found that Armadillo proteins lacking all or part of the C terminus retain some signaling ability if overexpressed, and that mutants lacking different portions of the C-terminal domain differ in their level of signaling ability. Finally, we found that the C terminus plays a role in Armadillo protein stability in response to Wingless signal and that the C-terminal domain can physically interact with the Arm repeat region. These data suggest that the C-terminal domain plays a complex role in Wingless signaling and that Armadillo recruits the transcriptional machinery via multiple contact sites, which act in an additive fashion.