The canonical Wnt/β-catenin signaling pathway is known to play crucial roles in organogenesis by regulating both proliferation and differentiation. In the inner ear, this pathway has been shown to regulate the size of the otic placode from which the cochlea will arise; however, direct activity of canonical Wnt signaling as well as its function during cochlear mechanosensory hair cell development had yet to be identified. Using TCF/Lef:H2B-GFP reporter mice and transfection of an independent TCF/Lef reporter construct, we describe the pattern of canonical Wnt activity in the developing mouse cochlea. We show that prior to terminal mitosis, canonical Wnt activity is high in early prosensory cells from which hair cells and support cells will differentiate, and activity becomes reduced as development progresses. Using an in vitro model we demonstrate that Wnt/β-catenin signaling regulates both proliferation and hair cell differentiation within the developing cochlear duct. Inhibition of Wnt/β-catenin signaling blocks proliferation during early mitotic phases of development and inhibits hair cell formation in the differentiating organ of Corti. Conversely, activation increases the number of hair cells that differentiate and induces proliferation in prosensory cells, causing an expansion of the Sox2-positive prosensory domain. We further demonstrate that the induced proliferation of Sox2-positive cells may be mediated by the cell cycle regulator cyclin D1. Lastly, we provide evidence that the mitotic Sox2-positive cells are competent to differentiate into hair cells. Combined, our data suggest that Wnt/β-catenin signaling has a dual function in cochlear development, regulating both proliferation and hair cell differentiation.