Significance Deciphering the mechanisms that underlie stem cell growth and differentiation is key to understanding how embryos develop and will lead to important applications in regenerative medicine. Wnt proteins are powerful regulators of stem cells. We have determined that the Sp1-like transcription factors, Sp5 and Sp8, are components of the Wnt/β-catenin signaling pathway. Sp5/8 promote the differentiation of pluripotent progenitors into the multipotent mesoderm progenitors that largely generate the trunk musculoskeletal system. Unexpectedly, Sp5/8 functions to recruit the transcriptional coactivator β-catenin to select enhancers to stimulate expression of a subset of Wnt target genes. This study reveals a more refined level of Wnt/β-catenin target gene regulation and suggests previously unidentified ways to manipulate the expression of specific Wnt targets.