The Wnt signaling pathway is essential for the development of diverse tissues during embryogenesis. Signal transduction is activated by the binding of Wnt proteins to the type I receptor low-density lipoprotein receptor-related protein 5/6 and the seven-pass transmembrane protein Frizzled (Fzd), which contains a Wnt-binding site in the form of a cysteine-rich domain. Known extracellular antagonists of the Wnt signaling pathway can be subdivided into two broad classes depending on whether they bind primarily to Wnt or to low-density lipoprotein receptor-related protein 5/6. We show that the secreted protein Tsukushi (TSK) functions as a Wnt signaling inhibitor by binding directly to the cysteine-rich domain of Fzd4 with an affinity of 2.3 × 10(-10) M and competing with Wnt2b. In the developing chick eye, TSK is expressed in the ciliary/iris epithelium, whereas Wnt2b is expressed in the adjacent anterior rim of the optic vesicle, where it controls the differentiation of peripheral eye structures, such as the ciliary body and iris. TSK overexpression effectively antagonizes Wnt2b signaling in chicken embryonic retinal cells both in vivo and in vitro and represses Wnt-dependent specification of peripheral eye fates. Conversely, targeted inactivation of the TSK gene in mice causes expansion of the ciliary body and up-regulation of Wnt2b and Fzd4 expression in the developing peripheral eye. Thus, we uncover a crucial role for TSK as a Wnt signaling inhibitor that regulates peripheral eye formation.