Upon stimulation by Wnt ligands, the canonical Wnt/beta-catenin signalling pathway results in the stabilization of beta-catenin and its translocation into the nucleus to form transcriptionally active complexes with sequence-specific DNA-binding T-cell factor/lymphoid enhancer factor (TCF/LEF) family proteins. In the absence of nuclear beta-catenin, TCF proteins act as transcriptional repressors by binding to Groucho/Transducin-Like Enhancer of split (TLE) proteins that function as co-repressors by interacting with histone deacetylases whose activity leads to the generation of transcriptionally silent chromatin. Here we show that the transcription factor Ladybird homeobox 2 (Lbx2) positively controls the Wnt/beta-catenin signalling pathway in the posterior lateral and ventral mesoderm of the zebrafish embryo at the gastrula stage, by directly interfering with the binding of Groucho/TLE to TCF, thereby preventing formation of transcription repressor complexes. These findings reveal a novel level of regulation of the canonical Wnt/beta-catenin signalling pathway occurring in the nucleus and involving tissue-specific derepression of TCF by Lbx2.