Dact proteins belong to the Dapper/Frodo protein family and function as cytoplasmic attenuators in Wnt and TGFβ signaling. Previous studies show that Dact1 is a potent Wnt signaling inhibitor by promoting degradation of β-catenin. We report a new mechanism for Dact2 function as an inhibitor of the canonical Wnt signaling pathway by interacting with PITX2. PITX2 is a downstream transcription factor in Wnt/β-catenin signaling, and PITX2 synergizes with Lef-1 to activate downstream genes. Immunohistochemistry verified the expression of Dact2 in the tooth epithelium, which correlated with Pitx2 epithelial expression. Dact2 loss of function and PITX2 gain of function studies reveal a feedback mechanism for controlling Dact2 expression. Pitx2 endogenously activates Dact2 expression and Dact2 feeds back to repress Pitx2 transcriptional activity. A Topflash reporter system was employed showing PITX2 activation of Wnt signaling, which is attenuated by Dact2. Transient transfections demonstrate the inhibitory effect of Dact2 on critical dental epithelial differentiation factors during tooth development. Dact2 significantly inhibits PITX2 activation of the Dlx2 and amelogenin promoters. Multiple lines of evidence conclude the inhibition is achieved by the physical interaction between Dact2 and Pitx2 proteins. The loss of function of Dact2 also reveals increased cell proliferation due to up-regulated Wnt downstream genes, cyclinD1 and cyclinD2. In summary, we have identified a novel role for Dact2 as an inhibitor of the canonical Wnt pathway in embryonic tooth development through its regulation of cell proliferation and differentiation.