The vertebrate Axin protein, the product of the mouse fused gene, binds to beta-catenin to inhibit Wnt signaling. We have identified a homolog of Axin in Drosophila, Daxin. Using double-stranded RNA interference, we generated loss-of-function phenotypes that are similar to overexpression of the Drosophila Wnt gene wingless (wg). Overexpression of Daxin produces phenotypes similar to loss of wg. In addition, we show that Daxin overexpression can modify phenotypes elicited by wg and another Drosophila Wnt gene, DWnt-2. Using immunoprecipitation of endogenous Daxin protein from embryos we show that Daxin interacts with Armadillo and Zeste-white 3. The loss-of-function and overexpression phenotypes show that Daxin, like its mammalian counterpart, acts as a negative regulator of wg/Wnt signaling.