The Xenopus nodal-related 3 gene (Xnr3) is expressed in the Spemann organizer of the embryo and encodes a member of the transforming growth factor beta family that mediates some activities of the organizer. Xnr3 is transcriptionally activated by wnt signaling during gastrulation in the Xenopus embryo. Here we show that a small region of the Xnr3 promoter is sufficient to confer wnt-inducible transcription. By mutational analysis of the promoter, we have identified two distinct sequence elements required for the response to wnt signals. One regulatory sequence interacts with a factor which accumulates in Xenopus gastrulae independent of wnt signaling. The other functionally important site can bind mammalian LEF-1 protein, a member of the LEF-1/TCF family of transcription factors. In addition, misexpression of LEF-1 in embryo explants induces transcription of the endogenous Xnr3 gene. Taken together, these data provide further evidence for a role of LEF-1/TCF proteins in wnt signaling and identify the Spemann organizer-specific gene Xnr3 as a direct target of these transcription factors in vertebrates.