The Hippo transducers YAP/TAZ have been shown to play positive, as well as negative, roles in Wnt signaling, but the underlying mechanisms remain unclear. Here, we provide biochemical, functional, and genetic evidence that YAP and TAZ are integral components of the β-catenin destruction complex that serves as cytoplasmic sink for YAP/TAZ. In Wnt-ON cells, YAP/TAZ are physically dislodged from the destruction complex, allowing their nuclear accumulation and activation of Wnt/YAP/TAZ-dependent biological effects. YAP/TAZ are required for intestinal crypt overgrowth induced by APC deficiency and for crypt regeneration ex vivo. In Wnt-OFF cells, YAP/TAZ are essential for β-TrCP recruitment to the complex and β-catenin inactivation. In Wnt-ON cells, release of YAP/TAZ from the complex is instrumental for Wnt/β-catenin signaling. In line, the β-catenin-dependent maintenance of ES cells in an undifferentiated state is sustained by loss of YAP/TAZ. This work reveals an unprecedented signaling framework relevant for organ size control, regeneration, and tumor suppression.