Intercellular signaling by a subset of Wnts is mediated by stabilization of cytoplasmic beta-catenin and its translocation to the nucleus. Immunolocalization of beta-catenin in developing chick skin reveals that this signaling pathway is active in a dynamic pattern from the earliest stages of feather bud development. Forced activation of this pathway by expression of a stabilized beta-catenin in the ectoderm results in the ectopic formation of feather buds. This construct is sufficient to induce bud formation since it does so both within presumptive feather tracts and in normally featherless regions where tract-specific signals are absent. It is also insensitive to the lateral inhibition that mediates the normal spacing of buds and can induce ectopic buds in interfollicular skin. However, additional patterning signals cooperate with this pathway to regulate gene expression within domains of stabilized beta-catenin expression. Localized activation of this pathway within the bud as it develops is required for normal morphogenesis and ectopic activation of the pathway leads to abnormally oriented buds and growths on the feather filaments. These results suggest that activation of the beta-catenin pathway initiates follicle development in embryonic skin and plays important roles in the subsequent morphogenesis of the bud.