The neural crest is a multipotent cell population that migrates from the dorsal edge of the neural tube to various parts of the embryo where it differentiates into a remarkable variety of different cell types. Initial induction of neural crest is mediated by a combination of BMP, Wnt, FGF, Retinoic acid and Notch/Delta signaling. The two-signal model for neural crest induction suggests that BMP signaling induces the competence to become neural crest. The second signal involves Wnt acting through the canonical pathway and leads to expression of neural crest markers such as slug. Wnt signals from the neural plate, non-neural ectoderm and paraxial mesoderm have all been suggested to play a role in neural crest induction. We show that Xenopus frizzled7 (Xfz7) is expressed in the dorsal ectoderm including early neural crest progenitors and is a key mediator of the Wnt inductive signal. We demonstrate that Xfz7 expression is induced in response to a BMP antagonist, noggin, and that Xfz7 can induce neural crest specific genes in noggin-treated ectodermal explants (animal caps). Morpholino-mediated or dominant negative inhibition of Xfz7 inhibits Wnt induced Xslug expression in the animal cap assay and in the whole embryo leading to a loss of neural crest derived pigment cells. Full-length Xfz7 rescues the morpholino-induced phenotype, as does activated beta-catenin, suggesting that Xfz7 is signaling through the canonical pathway. We therefore demonstrate that Xfz7 is regulated by BMP antagonism and is required for neural crest induction by Wnt in the developing vertebrate embryo.