The Wnt signaling pathway must be properly modulated to ensure an appropriate output: pathological conditions result from either insufficient or excessive levels of Wnt signal. For example, hyperactivation of the Wnt pathway is associated with various cancers and subnormal Wnt signaling can lead to increased invasiveness of tumor cells. We found that the Caenorhabditis elegans ortholog of the Fer nonreceptor tyrosine kinase, FRK-1, limits Wnt signaling by preventing the adhesion complex-associated β-catenin, HMP-2, from participating in Wnt-dependent specification of the endoderm during embryogenesis. Removal of FRK-1 function results in relocalization of HMP-2 to the nucleus of epidermal cells, and allows it to substitute for WRM-1, the nuclear β-catenin that normally transduces the Wnt signal during endoderm development. APR-1, the C. elegans APC ortholog, is similarly required to prevent HMP-2 relocalization and keeps it from participating in Wnt signal transduction; this finding partially explains the paradoxical observation that APR-1 acts either negatively or positively in Wnt signaling, depending on context. The apparent hyperactivation of the Wnt response in the absence of FRK-1 leads to hyperproliferation in the endoderm, as is also seen when WRM-1 is overexpressed in wild-type embryos. The specification and proliferation activities of Wnt signaling are separable: although the Tcf/Lef factor POP-1 acts in Wnt-dependent endoderm specification, it is not apparently required for hyperproliferation resulting from excessive Wnt signaling. These findings highlight a role for a Fer-type kinase in setting the proper levels of Wnt signaling and demonstrate the importance of this modulation in ensuring appropriate cell division.