After the primary anterior-posterior patterning of the neural plate, a subset of wnt signaling molecules including Xwnt-1, Xwnt-2b, Xwnt-3A, Xwnt-8b are still expressed in the developing brain in a region spanning from the posterior part of the diencephalon to the mesencephalon/metencephalon boundary. In this expression field, they are colocalized with the HMG-box transcription factor XTcf-4. Using antisense morpholino loss-of-function strategies, we demonstrate that the expression of this transcription factor depends on Xwnt-2b, which itself is under the control of XTcf-4. Marker gene analyses reveal that this autoregulatory loop is important for proper development of the midbrain and the isthmus. Staining for NCAM reveals a lack of dorsal neural tissue in this area. This reduction is caused by a reduced proliferation rate as shown by staining for PhosphoH3 positive nuclei. In rescue experiments, we demonstrate that individual isoforms of XTcf-4 control the development of different parts of the brain. XTcf-4A restored the expression of the mesencephalon marker genes pax-6 and wnt-2b but not the isthmus marker gene en-2. XTcf-4C, in contrast, restored en-2, but had only weak effects on pax-6 and wnt-2b. Thus, autoregulation of canonical Wnt signaling and alternative expression of different isoforms of XTcf-4 is essential for specifying the developing CNS.