The Wnt/beta-catenin signaling pathway is important in both development and cancer. Casein kinase Iepsilon (CKIepsilon) is a positive regulator of the canonical Wnt pathway. CKIepsilon itself can be regulated in vitro by inhibitory autophosphorylation, and recent data suggest that in vivo kinase activity can be regulated by extracellular stimuli. We show here that the phosphorylation state and kinase activity of CKIepsilon are directly regulated by Wnt signaling. Coexpression of XWnt-8 or addition of soluble Wnt-3a ligand led to a significant and rapid increase in the activity of endogenous CKIepsilon. The increase in CKIepsilon activity is the result of decreased inhibitory autophosphorylation because it is abolished by preincubation of immunoprecipitated kinase with ATP. Furthermore, mutation of CKIepsilon inhibitory autophosphorylation sites creates a kinase termed CKIepsilon(MM2) that is significantly more active than CKIepsilon and is not activated further upon Wnt stimulation. Autoinhibition of CKIepsilon is biologically relevant because CKIepsilon(MM2) is more effective than CKIepsilon at activating transcription from a Lef1-dependent promoter. Finally, CKIepsilon(MM2) expression in Xenopus embryos induces both axis duplication and additional developmental abnormalities. The data suggest that Wnt signaling activates CKIepsilon by causing transient dephosphorylation of critical inhibitory sites present in the carboxyl-terminal domain of the kinase. Activation of the Wnt pathway may therefore stimulate a cellular phosphatase to dephosphorylate and activate CKIepsilon