Axin was identified as a regulator of embryonic axis induction in vertebrates that inhibits the Wnt signal transduction pathway. Epistasis experiments in frog embryos indicated that Axin functioned downstream of glycogen synthase kinase 3beta (GSK3beta) and upstream of beta-catenin, and subsequent studies showed that Axin is part of a complex including these two proteins and adenomatous polyposis coli (APC). Here, we examine the role of different Axin domains in the effects on axis formation and beta-catenin levels. We find that the regulators of G-protein signaling domain (major APC-binding site) and GSK3beta-binding site are required, whereas the COOH-terminal sequences, including a protein phosphatase 2A binding site and the DIX domain, are not essential. Some forms of Axin lacking the beta-catenin binding site can still interact indirectly with beta-catenin and regulate beta-catenin levels and axis formation. Thus in normal embryonic cells, interaction with APC and GSK3beta is critical for the ability of Axin to regulate signaling via beta-catenin. Myc-tagged Axin is localized in a characteristic pattern of intracellular spots as well as at the plasma membrane. NH2-terminal sequences were required for targeting to either of these sites, whereas COOH-terminal sequences increased localization at the spots. Coexpression of hemagglutinin-tagged Dishevelled (Dsh) revealed strong colocalization with Axin, suggesting that Dsh can interact with the Axin/APC/GSK3/beta-catenin complex, and may thus modulate its activity.