Both activating and null mutations of proteins required for canonical WNT signaling have revealed the importance of this pathway for normal skeletal development. However, tissue-specific transcriptional mechanisms through which WNT signaling promotes the differentiation of bone-forming cells have yet to be identified. Here, we address the hypothesis that canonical WNT signaling and the bone-related transcription factor RUNX2/CBFA1/AML3 are functionally linked components of a pathway required for the onset of osteoblast differentiation. Our findings show that, in bone of the SFRP1 (secreted frizzled-related protein-1)-null mouse, which exhibits activated WNT signaling and a high bone mass phenotype, there is a significant increase in expression of T-cell factor (TCF)-1, Runx2, and the RUNX2 target gene osteocalcin. We demonstrate by mutational analysis that a functional TCF regulatory element responsive to canonical WNT signaling resides in the promoter of the Runx2 gene (-97 to -93). By chromatin immunoprecipitation, recruitment of β-catenin and TCF1 to the endogenous Runx2 gene is shown. Coexpression of TCF1 with canonical WNT proteins resulted in a 2-5-fold activation of Runx2 promoter activity and a 7-8-fold induction of endogenous mRNA in mouse pluripotent mesenchymal and osteoprogenitor cells. This enhancement was abrogated by SFRP1. Taken together, our results provide evidence for direct regulation of Runx2 by canonical WNT signaling and suggest that Runx2 is a target of β-catenin/TCF1 for the stimulation of bone formation. We propose that WNT/TCF1 signaling, like bone morphogenetic protein/transforming growth factor-β signaling, activates Runx2 gene expression in mesenchymal cells for the control of osteoblast differentiation and skeletal development. © 2005 by The American Society for Biochemistry and Molecular Biology, Inc.