Multiple Wnt ligands are expressed in the developing tooth and play important and redundant functions during odontogenesis. However, the source of Wnt ligands and their targeting cells and action mechanism in tooth organogenesis remain largely elusive. Here we show that epithelial inactivation of Gpr177, the mouse Wntless (Wls) whose product regulates Wnt sorting and secretion, leads to arrest of tooth development at the early cap stage and abrogates tooth-forming capability of the dental epithelium. Gpr177 in the epithelium is necessary for the activation of canonical Wnt signaling in the dental epithelium and formation of a functional enamel knot. Epithelial deletion of Gpr177 results in defective gene expression and cellular behavior in the dental epithelium but does not alter odontogenic program in the mesenchyme. Furthermore, deletion of Axin2, a negative intracellular regulator of canonical Wnt signaling, rescues the tooth defects in mice carrying Gpr177 mutation in the dental epithelium. Together with the fact that active Wnt canonical signaling is present predominantly in the dental epithelium during tooth development, our results demonstrate that Gpr177-mediated Wnt ligands in the dental epithelium act primarily in an intra-epithelial context to regulate enamel knot formation and subsequent tooth development.