Self-renewal of rodent embryonic stem cells is enhanced by partial inhibition of glycogen synthase kinase-3 (Gsk3; refs 1,2). This effect has variously been attributed to stimulation of Wnt signalling by β-catenin1 , stabilization of Myc protein3 and global de-inhibition of anabolic processes4 . Here we demonstrate that β-catenin is not necessary for embryonic stem cell identity or expansion, but its absence eliminates the self-renewal response to Gsk3 inhibition. Responsiveness is fully restored by truncated β-catenin lacking the carboxy-terminal transactivation domain5 . However, requirement for Gsk3 inhibition is dictated by expression of T-cell factor 3 (Tcf3) and mediated by direct interaction with β-catenin. Tcf3 localizes to many pluripotency genes6 in embryonic stem cells. Our findings confirm that Tcf3 acts as a transcriptional repressor and reveal that β-catenin directly abrogates Tcf3 function. We conclude that Gsk3 inhibition stabilizes the embryonic stem cell state primarily by reducing repressive influence on the core pluripotency network.