Although deregulation of the Wnt signalling pathway has been implicated in urothelial cell carcinoma (UCC), the functional significance is unknown. To test its importance, we have targeted expression of an activated form of β-catenin to the urothelium of transgenic mice using Cre–Lox technology (UroIICRE+ β-cateninexon3/+). Expression of this activated form of β-catenin led to the formation of localized hyperproliferative lesions by 3 months, which did not progress to malignancy. These lesions were characterized by a marked increase of the phosphatase and tensin homologue (PTEN) tumour suppressor protein. This appears to be a direct consequence of activating Wnt signalling in the bladder as conditional deletion of the adenomatous polyposis coli (Apc) gene within the adult bladder led rapidly to coincident β-catenin and PTEN expression. This PTEN expression blocked proliferation. Next, we combined PTEN deficiency with β-catenin activation and found that this caused papillary UCC. These tumours had increased pAKT signalling and were dependent on mammalian target of rapamycin (mTOR). Importantly, in human UCC, there was a significant correlation between high levels of β-catenin and pAKT (and low levels of PTEN). Taken together these data show that deregulated Wnt signalling has a critical role in promoting UCC, and suggests that human UCC that have high levels of Wnt and PI3 kinase signalling may be responsive to mTOR inhibition.