The highly conserved Wingless/Wnt signaling pathway controls many developmental processes by regulating the expression of target genes, most often through members of the TCF family of DNA-binding proteins. In the absence of signaling, many of these targets are silenced, by mechanisms involving TCFs that are not fully understood. Here we report that the chromatin remodeling proteins ISWI and ACF1 are required for basal repression of Wg target genes in Drosophila. This regulation is not due to global repression by ISWI and ACF1 and is distinct from their previously reported role in chromatin assembly. While ISWI is localized to the same regions of Wingless target gene chromatin as TCF, we find that ACF1 binds much more broadly to target loci. This broad distribution of ACF1 is dependent on ISWI. ISWI and ACF1 are required for TCF binding to chromatin, while a TCF-independent role of ISWI-ACF1 in repression of Wingless targets is also observed. Finally, we show that Wingless signaling reduces ACF1 binding to Wg targets, and ISWI and ACF1 regulate repression by antagonizing histone H4 acetylation. Our results argue that Wg signaling activates target gene expression partly by overcoming the chromatin barrier maintained by ISWI and ACF1.