We have identified two Xenopus mRNAs that encode proteins homologous to a component of the Wnt/beta-catenin transcriptional machinery known as Pygopus. The predicted proteins encoded by both mRNAs share the same structural properties with human Pygo-2, but with Xpygo-2alpha having an additional 21 N-terminal residues. Xpygo-2alpha messages accumulate in the prospective anterior neural plate after gastrulation and then are localized to the nervous system, rostral to and including the hindbrain. Xpygo-2beta mRNA is expressed in oocytes and early embryos but declines in level before and during gastrulation. In late neurula, Xpygo-2beta mRNA is restricted to the retinal field, including eye primordia and prospective forebrain. A C-terminal truncated mutant of Xpygo-2 containing the N-terminal Homology Domain (NHD) caused both axis duplication when injected at the 2-cell stage and inhibition of anterior neural development when injected in the prospective head, mimicking the previously described effects of Wnt-signaling activators. Inhibition of Xpygo-2alpha and Xpygo-2beta by injection of gene-specific antisense morpholino oligonucleotides into prospective anterior neurectoderm caused brain defects that were prevented by coinjection of Xpygo-2 mRNA. Both Xpygo-2alpha and Xpygo-2beta morpholinos reduced the eye and forebrain markers Xrx-1, Xpax-6, and XBF-1, while the Xpygo-2alpha morpholino also eliminated expression of the mid-hindbrain marker En-2. The differential expression and regulatory activities of Xpygo-2alpha/beta in rostral neural tissue indicate that they represent essential components of a novel mechanism for Wnt signaling in regionalization of the brain.