The Caenorhabditis elegans vulva has been a valuable paradigm for defining components of signaling pathways and elucidating how signaling events are coordinated to generate a developmental pattern. Vulval precursor cells (VPCs) are induced to adopt vulval fates in the third larval stage by LIN-3, an EGF-like signal produced by the gonad. Competence to respond to the inductive signal requires that the VPCs do not fuse to the major hypodermal syncytium, hyp7. We found that two Wnt-encoding genes, cwn-1 and egl-20, play a major role in preventing fusion of VPCs with hyp7 in the second larval stage. By using tissue-specific rescue of mig-14/Wntless, which is required for the production of Wnt ligands, we found that Wnt signal produced by multiple tissues, including neurons and muscles, promotes or maintains VPC competence before vulval induction. In addition, through laser ablation and genetic analysis, we provide evidence that LIN-3 signal from the gonad also plays a significant role in preventing VPCs from fusing with hyp7. We propose that Wnt signaling plays a permissive role in preventing VPCs from fusing with hyp7 and reevaluate the roles of Wnt and LIN-3/EGF signaling in competence and induction.