Lef1 and other genes of the LEF1/TCF family of transcription factors are nuclear mediators of Wnt signaling. Here we examine the expression pattern and functional importance of Lef1 in the developing forebrain of the mouse. Lef1 is expressed in the developing hippocampus, and LEF1-deficient embryos lack dentate gyrus granule cells but contain glial cells and interneurons in the region of the dentate gyrus. In mouse embryos homozygous for a Lef1-lacZ fusion gene, which encodes a protein that is not only deficient in DNA binding but also interferes with (beta)-catenin-mediated transcriptional activation by other LEF1/TCF proteins, the entire hippocampus including the CA fields is missing. Thus, LEF1 regulates the generation of dentate gyrus granule cells, and together with other LEF1/TCF proteins, the development of the hippocampus.