In the chick, heart mesoderm is induced by signals from the anterior endoderm. Although BMP-2 is expressed in the anterior endoderm, BMP activity is necessary but not sufficient for heart formation. Previous work from our lab has suggested that one or more additional factors from anterior endoderm are required. Crescent is a Frizzled-related protein that inhibits Wnt-8c and is expressed in anterior endoderm during gastrulation. At the same stages, expression of Wnt-3a and Wnt-8c is restricted to the primitive streak and posterior lateral plate, and is absent from the anterior region where crescent is expressed. Posterior lateral plate mesoderm normally forms blood, but coculture of this tissue with anterior endoderm or infection with RCAS-crescent induces formation of beating heart muscle and represses formation of blood. Dkk-1, a Wnt inhibitor of a different protein family, similarly induces heart-specific gene expression in posterior lateral plate mesoderm. Furthermore, we have found that ectopic Wnt signals can repress heart formation from anterior mesoderm in vitro and in vivo and that forced expression of either Wnt-3a or Wnt-8c can promote development of primitive erythrocytes from the precardiac region. We conclude that inhibition of Wnt signaling promotes heart formation in the anterior lateral mesoderm, whereas active Wnt signaling in the posterior lateral mesoderm promotes blood development. We propose a model in which two orthogonal gradients, one of Wnt activity along the anterior-posterior axis and the other of BMP signals along the dorsal-ventral axis, intersect in the heart-forming region to induce cardiogenesis in a region of high BMP and low Wnt activity.