Background: COUP transcription factors are required for the regulation of gene expression underlying development, differentiation, and homeostasis. They have an evolutionarily conserved function, being a known marker for neurogenesis from cnidarians to vertebrates. A homologue of this gene was shown previously to be a neuronal and nematocyte differentiation marker in Hydra. However, COUP-TFs had not previously been studied in a colonial cnidarian.Methodology/Principal Findings: We cloned a COUP-TF homologue from the colonial marine cnidarian Hydractinia echinata. Expression of the gene was analysed during normal development, allorecognition events and ectopic Wnt activation, using in situ hybridisation and quantitative PCR. During normal Hydractinia development, the gene was first expressed in post-gastrula stages. It was undetectable in larvae, and its mRNA was present again in putative differentiating neurons and nematocytes in post-metamorphic stages. Global activation of canonical Wnt signalling in adult animals resulted in the upregulation of COUP-TF. We also monitored a strong COUP-TF upregulation in stolons undergoing allogeneic interactions. COUP-TF mRNA was most concentrated in the tissues that contacted allogeneic, non-self tissues, and decreased in a gradient away from the contact area. Interestingly, the gene was transiently upregulated during initial contact of self stolons, but dissipated rapidly following self recognition, while in non-self contacts high expression levels were maintained.Conclusions/Significance: We conclude that COUP-TF is likely involved in neuronal/nematocyte differentiation in a variety of contexts. This has now been shown to include allorecognition, where COUP-TF is thought to have been co-opted to mediate allorejection by recruiting stinging cells that are the effectors of cytotoxic rejection of allogeneic tissue. Our findings that Wnt activation upregulates COUP-TF expression suggests that Wnts' role in neuronal differentiation could be mediated through COUP-TF.