The Zic transcription factors play critical roles during embryonic development. Mutations in the ZIC2 gene are associated with human holoprosencephaly, but the etiology is still unclear. Here, we report a novel function for ZIC2 as a regulator of β-catenin·TCF4-mediated transcription. We show that ZIC2 can bind directly to the DNA-binding high mobility group box of TCF4 via its zinc finger domain and inhibit the transcriptional activity of the β-catenin·TCF4 complex. However, the binding of TCF4 to DNA was not affected by ZIC2. Zic2 RNA injection completely inhibited β-catenin-induced axis duplication in Xenopus embryos and strongly blocked the ability of β-catenin to induce expression of known Wnt targets in animal caps. Moreover, Zic2 knockdown in transgenic Xenopus Wnt reporter embryos led to ectopic Wnt signaling activity mainly at the midbrain-hindbrain boundary. Together, our results demonstrate a previously unknown role for ZIC2 as a transcriptional regulator of the β-catenin·TCF4 complex.