Studies of chimeric mice have disclosed that the stem cell hierarchy in the small intestinal epithelium is established during formation of its proliferative units (crypts of Lieberkühn). This process involves a selection among several multipotential progenitors so that ultimately only one survives to supply descendants to the fully formed crypt. In this report, we examine the hypothesis that the level of β-catenin (β-cat)-mediated signaling is an important factor regulating this stem cell selection. In the canonical Wnt signaling pathway, β-catenin can partner with Lef-1/Tcf high mobility group (HMG) box transcription factors to control gene expression. Both Lef-1 and Tcf-4 mRNAs are produced in the fetal mouse small intestine. Tcf-4 expression is sustained, whereas Lef-1 levels fall as crypt formation is completed during the first two postnatal weeks. A Tcf-4 gene knockout is known to block intestinal epithelial proliferation in late fetal life. Therefore, to test the hypothesis, we enhanced β-catenin signaling in a chimeric mouse model in which the stem cell selection could be monitored. A fusion protein containing the HMG box domain of Lef-1 linked to the trans-activation domain of β-catenin (Lef-1/β-cat) was constructed to promote direct stimulation of signaling without being retained in the cytoplasm through interactions with E-cadherin and Apc/Axin. Lef-1/β-cat was expressed in 129/Sv embryonic stem cell-derived small intestinal epithelial progenitors present in developing B6-ROSA26↔129/Sv chimeras. Lef-1/β-cat stimulated expression of a known β-catenin target (E-cadherin), suppressed expression of Apc and Axin, and induced apoptosis in 129/Sv but not in neighboring B6-ROSA26 epithelial cells. This apoptotic response was not associated with any detectable changes in cell division within the Lef-1/β-cat-expressing epithelium. By the time crypt development was completed, all 129/Sv epithelial cells were lost. These results indicate that developmental changes in β-catenin-mediated signaling can play an important role in establishing a stem cell hierarchy during crypt morphogenesis.