Wnt signaling has an important role in both embryonic development and tumorigenesis. beta-Catenin, a key component of the Wnt signaling pathway, interacts with the TCF/LEF family of transcription factors and activates transcription of Wnt target genes. Here, we identify a novel beta-catenin-interacting protein, ICAT, that was found to inhibit the interaction of beta-catenin with TCF-4 and represses beta-catenin-TCF-4-mediated transactivation. Furthermore, ICAT inhibited Xenopus axis formation by interfering with Wnt signaling. These results suggest that ICAT negatively regulates Wnt signaling via inhibition of the interaction between beta-catenin and TCF and is integral in development and cell proliferation.