The mechanisms by which the Wingless (Wg) morphogen modulates the activity of the transcriptional activator Armadillo (Arm) to elicit precise, concentration-dependent cellular responses remain uncertain. Arm is targeted for proteolysis by the Axin/Adenomatous polyposis coli (Apc1 and Apc2)/Zeste-white 3 destruction complex, and Wg-dependent inactivation of destruction complex activity is crucial to trigger Arm signaling. In the prevailing model for Wg transduction, only Axin levels limit destruction complex activity, whereas Apc is present in vast excess. To test this model, we reduced Apc activity to different degrees, and analyzed the effects on three concentration-dependent responses to Arm signaling that specify distinct retinal photoreceptor fates. We find that both Apc1 and Apc2 negatively regulate Arm activity in photoreceptors, but that the relative contribution of Apc1 is much greater than that of Apc2. Unexpectedly, a less than twofold reduction in total Apc activity, achieved by loss of Apc2, decreases the effective threshold at which Wg elicits a cellular response, thereby resulting in ectopic responses that are spatially restricted to regions with low Wg concentration. We conclude that Apc activity is not present in vast excess, but instead is near the minimal level required for accurate graded responses to the Wg morphogen.