Wnt proteins constitute one of the major families of secreted ligands that function in developmental signaling, however, little is known of the role of Wnt5a during inner ear development. It is hypothesized that Wnt5a acts as a mediator of chondrogenesis in the developing otic capsule, a cartilaginous structure that surrounds the developing inner ear and presages the formation of the endochondral bony labyrinth. We report the pattern of expression of Wnt5a protein and mRNA in the developing mouse inner ear using immunohistochemistry, whole-mount in situ hybridization and RT-PCR, and the ability of exogenous Wnt5a to stimulate otic capsule chondrogenesis when added to high-density cultures of periotic mesenchyme containing otic epithelium (periotic mesenchyme + otic epithelium), a well-established model of otic capsule formation. We show that in the presence of secreted frizzled related protein 3 (sfrp3), a Wnt antagonist expressed in the developing inner ear, or Wnt5a-specific antisense oligonucleotide, which diminishes endogenous Wnt5a, otic capsule chondrogenesis is suppressed in culture. We determined by histological analysis and aggrecan immunoreactivity that chondrogenic differentiation is disturbed in Wnt5a null embryos, and provide evidence that the periotic mesenchyme + otic epithelium harvested from Wnt5a null mice is compromised in its ability to differentiate into cartilage when interacted in culture. We propose a model whereby sfrp3 and Wnt5a act antagonistically to ensure appropriate patterns of chondrogenesis and provide coordinated control of otic capsule formation. Our findings support Wnt5a and sfrp3 as regulators of otic capsule formation in the developing mouse inner ear.