Frizzled related proteins (FRPs) comprise a family of secreted molecules that contain an N-terminal cysteine-rich domain (CRD) highly similar to the CRDs of the frizzled family of membrane-anchored Wnt receptors. FRPs have been shown to interact with Wnt proteins and antagonize Wnt signaling in a Xenopus developmental model. We demonstrated that FRP antagonizes the Wnt-induced increase in uncomplexed beta-catenin in both transient cotransfection and stable transformation models, where Wnt-induced morphological alterations are inhibited as well. We showed further that FRP inhibits Wnt signaling in a paracrine mode using a T-cell factor luciferase reporter to measure Wnt function. Investigation of the mechanisms responsible for FRP inhibition revealed that FRP forms complexes with WNT-1 or WNT-2 through its CRD domain. Transfection analysis with FRPs containing different tags revealed that FRP itself forms complexes and that this ability is conferred by its CRD domain. Finally, we demonstrated by cotransfection that FRP forms complexes with a prototype frizzled. All of these findings are consistent with a model by which FRP inhibits Wnt signaling through interactions with Wnt and/or formation of nonfunctional complexes with the frizzled receptor.