Bone morphogenetic proteins (BMPs) and Wnts are growth factors that provide essential patterning signals for cell proliferation and differentiation. Here, we describe a molecular mechanism by which the phosphorylation state of the Drosophila transcription factor Mad determines its ability to transduce either BMP or Wingless (Wg) signals. Previously, Mad was thought to function in gene transcription only when phosphorylated by BMP receptors. We found that the unphosphorylated form of Mad was required for canonical Wg signaling by interacting with the Pangolin-Armadillo transcriptional complex. Phosphorylation of the carboxyl terminus of Mad by BMP receptor directed Mad toward BMP signaling, thereby preventing Mad from functioning in the Wg pathway. The results show that Mad has distinct signal transduction roles in the BMP and Wnt pathways depending on its phosphorylation state.