Members of the Frizzled (Fz) family of seven-pass transmembrane receptors are required for the transduction of both Wnt-Fz/beta-catenin and Fz/planar cell polarity (PCP) signals. Although both pathways transduce signals via interactions between Fz and the cytoplasmic protein Dishevelled (Dsh), each pathway has specific and distinct effectors. One explanation for the pathway specificity is that signal-induced conformational changes result in unique Fz-Dsh interactions. Our mutational analyses of Fz-Dsh activities in vivo do however not support this model, since both pathways are affected by all mutations tested. Alternatively, the interaction of Fz or Dsh with other proteins could modulate the signaling outcome. We examined the role of a Dsh-binding PCP molecule, Diego (Dgo), in both Wnt-Fz/beta-catenin and Fz/PCP signaling. Both loss-of-function and gain-of-function results suggest that Dgo promotes Fz-Dsh/PCP signaling at the expense of Wnt-Fz/beta-catenin signaling. Our data suggest that Dgo sequesters Dsh to a functionally distinct Fz/PCP signaling compartment within the cell.