We describe the isolation of the Xenopus homeobox gene twin (Xtwn), which was identified in an expression cloning screen for molecules with dorsalizing activities. Injection of synthetic Xtwn mRNA restores a complete dorsal axis in embryos lacking dorsal structures and induces a complete secondary dorsal axis when ectopically expressed in normal embryos. The sequence homology, expression pattern and gain-of-function phenotype of Xtwn is most similar to the previously isolated Xenopus homeobox gene siamois (Xsia) suggesting that Xtwn and Xsia comprise a new subclass of homeobox genes important in dorsal axis specification. We find that Xtwn is able to activate the Spemann organizer-specific gene goosecoid (gsc) via direct binding to a region of the gsc promoter previously shown to mediate Wnt induction. Since Xtwn expression is strongly induced in ectodermal (animal cap) cells in response to overexpression of a dorsalizing Wnt molecule, we examined the possibility that Xtwn might be a direct target of a Wnt signal transduction cascade. First, we demonstrate that purified LEF1 protein can interact, in vitro, with consensus LEF1/TCF3-binding sites found within the Xtwn promoter. Second, these binding sites were shown to be required for Wnt-mediated induction of a Xtwn reporter gene containing these sites. As LEF1/TCF3 family transcription factors have previously been shown to directly mediate Wnt signaling, these results suggest that Xtwn induction by Wnt may be direct. Finally, in UV-hyperventralized embryos, expression of endogenous Xtwn is confined to the vegetal pole and a Xtwn reporter gene is hyperinduced vegetally in a LEF1/TCF3-binding-site-dependent manner. These results suggest that cortical rotation distributes Wnt-like dorsal determinants to the dorsal side of the embryo, including the dorsal marginal zone, and that these determinants may directly establish Spemann's organizer in this region.