A role for Rac1 GTPase in canonical Wnt signalling has been recently demonstrated, being required for β-catenin translocation to the nucleus. In this article we have investigated the mechanism of Rac1 stimulation by Wnt. Up-regulation of Rac1activity by Wnt3a temporally correlates with enhanced p120-catenin binding to Rac1 and Vav2. Vav2 and Rac1 association with p120-catenin is modulated by phosphorylation of this protein: it is stimulated upon serine/threonine phosphorylation by CK1 and inhibited by tyrosine phosphorylation by Src or Fyn. Acting on these two post-translational modifications, Wnt3a induces the release of p120-catenin from E-cadherin, enables p120-catenin interaction with Vav2 and Rac1 and facilitates Rac1 activation by Vav2. Since p120-catenin depletion disrupts gastrulation in Xenopus, we analysed p120-catenin mutants for their ability to rescue this phenotype. In contrast to the wild-type protein or other controls, p120-catenin point mutants deficient in the release from E-cadherin or in Vav2- or Rac1-binding failed to rescue p120-catenin depletion. Collectively, these results indicate that p120-catenin binding to Vav2 and Rac1 is required for the activation of this GTPase upon Wnt signalling.