Several signalling cascades are implicated in the formation and patterning of the three principal germ layers, but their precise temporal-spatial mode of action in progenitor populations remains undefined. We have used conditional gene deletion of mouse β-catenin in Sox17-positive embryonic and extra-embryonic endoderm as well as vascular endothelial progenitors to address the function of canonical Wnt signalling in cell lineage formation and patterning. Conditional mutants fail to form anterior brain structures and exhibit posterior body axis truncations, whereas initial blood vessel formation appears normal. Tetraploid rescue experiments reveal that lack of β-catenin in the anterior visceral endoderm results in defects in head organizer formation. Sox17 lineage tracing in the definitive endoderm (DE) shows a cell-autonomous requirement for β-catenin in midgut and hindgut formation. Surprisingly, wild-type posterior visceral endoderm (PVE) in midgut- and hindgut-deficient tetraploid chimera rescues the posterior body axis truncation, indicating that the PVE is important for tail organizer formation. Upon loss of β-catenin in the visceral endoderm and DE lineages, but not in the vascular endothelial lineage, Sox17 expression is not maintained, suggesting downstream regulation by canonical Wnt signalling. Strikingly, Tcf4/β-catenin transactivation complexes accumulated on Sox17 cis-regulatory elements specifically upon endoderm induction in an embryonic stem cell differentiation system. Together, these results indicate that the Wnt/β-catenin signalling pathway regulates Sox17 expression for visceral endoderm pattering and DE formation and provide the first functional evidence that the PVE is necessary for gastrula organizer gene induction and posterior axis development.