Endochondral ossification is recapitulated during bone morphogenetic protein (BMP)-induced ectopic bone formation. Although BMP and beta-catenin have been investigated in bone development and in mesenchymal cells, how they interact in this process is not clear. We implanted recombinant BMP-2 into the muscle of mice to investigate the effect of beta-catenin signaling on BMP-induced in vivo endochondral bone formation. BMP-2 induced expression of several Wnt ligands and their receptors and also activated beta-catenin-mediated T cell factor-dependent transcriptional activity. An adenovirus expressing Dickkopf-1 (Dkk-1, an inhibitor of canonical Wnt pathway) inhibited beta-catenin signaling and endochondral bone formation. Interestingly, Dkk-1 inhibited both chondrogenesis and osteogenesis. Likewise, mice expressing conditional beta-catenin null alleles also displayed an inhibition of BMP-induced chondrogenesis and osteogenesis. This is in contrast to studies of embryonic skeletogenesis, which demonstrate that beta-catenin is required for osteogenesis but is dispensable for chondrogenesis. These findings suggest that embryonic development pathways are not always recapitulated during post-natal regenerative processes, and the biochemical pathways utilized to regulate cell differentiation may be different. During in vivo ectopic bone formation, BMP-2 induces beta-catenin-mediated signaling through Wnt ligands, and beta-catenin is required for both chondrogenesis and osteogenesis.