The vertebrate organizer can induce a complete body axis when transplanted to the ventral side of a host embryo by virtue of its distinct head and trunk inducing properties. Wingless/Wnt antagonists secreted by the organizer have been identified as head inducers. Their ectopic expression can promote head formation, whereas ectopic activation of Wnt signalling during early gastrulation blocks head formation. These observations suggest that the ability of head inducers to inhibit Wnt signalling during formation of anterior structures is what distinguishes them from trunk inducers that permit the operation of posteriorizing Wnt signals. Here we describe the zebrafish headless (hdl) mutant and show that its severe head defects are due to a mutation in T-cell factor-3 (Tcf3), a member of the Tcf/Lef family. Loss of Tcf3 function in the hdl mutant reveals that hdl represses Wnt target genes. We provide genetic evidence that a component of the Wnt signalling pathway is essential in vertebrate head formation and patterning.