Although the functional importance of the hypothalamus has been demonstrated throughout vertebrates, the mechanisms controlling neurogenesis in this forebrain structure are poorly understood. We report that canonical Wnt signaling acts through Lef1 to regulate neurogenesis in the zebrafish hypothalamus. We show that Lef1 is required for proneural and neuronal gene expression, and for neuronal differentiation in the posterior hypothalamus. Furthermore, we find that this process is dependent on Wnt8b, a ligand of the canonical pathway expressed in the posterior hypothalamus, and that both Wnt8b and Lef1 act to mediate beta-catenin-dependent transcription in this region. Finally, we show that Lef1 associates in vivo with the promoter of sox3, which depends on Lef1 for its expression and can rescue neurogenesis in the absence of Lef1. The conserved presence of this pathway in other vertebrates suggests a common mechanism for regulating hypothalamic neurogenesis.