Rodent incisors are covered by enamel only on their labial side. This asymmetric distribution of enamel is instrumental to making the cutting edge sharp. Enamel matrix is secreted by ameloblasts derived from dental epithelium. Here we show that overexpression of follistatin in the dental epithelium inhibits ameloblast differentiation in transgenic mouse incisors, whereas in follistatin knockout mice, ameloblasts differentiate ectopically on the lingual enamel-free surface. Consistent with this, in wild-type mice, follistatin was continuously expressed in the lingual dental epithelium but downregulated in the labial epithelium. Experiments on cultured tooth explants indicated that follistatin inhibits the ameloblast-inducing activity of BMP4 from the underlying mesenchymal odontoblasts and that follistatin expression is induced by activin from the surrounding dental follicle. Hence, ameloblast differentiation is regulated by antagonistic actions of BMP4 and activin A from two mesenchymal cell layers flanking the dental epithelium, and asymmetrically expressed follistatin regulates the labial-lingual patterning of enamel formation.