Wnt/β-catenin signalling has a variety of roles in regulating stem cell fates. Its specific role in mouse epiblast stem cell self-renewal, however, remains poorly understood. Here we show that Wnt/β-catenin functions in both self-renewal and differentiation in mouse epiblast stem cells. Stabilization and nuclear translocation of β-catenin and its subsequent binding to T-cell factors induces differentiation. Conversely, retention of stabilized β-catenin in the cytoplasm maintains self-renewal. Cytoplasmic retention of β-catenin is effected by stabilization of Axin2, a downstream target of β-catenin, or by genetic modifications to β-catenin that prevent its nuclear translocation. We also find that human embryonic stem cell and mouse epiblast stem cell fates are regulated by β-catenin through similar mechanisms. Our results elucidate a new role for β-catenin in stem cell self-renewal that is independent of its transcriptional activity and will have broad implications in understanding the molecular regulation of stem cell fate.