Loss of Dkk1 results in ectopic WNT/beta-catenin signalling activity in the anterior germ layer tissues and impairs cell movement in the endoderm of the mouse gastrula. The juxtaposition of the expression domains of Dkk1 and Wnt3 is suggestive of an antagonist-agonist interaction. The downregulation of Dkk1 when Wnt3 activity is reduced reveals a feedback mechanism for regulating WNT signalling. Compound Dkk1;Wnt3 heterozygous mutant embryos display head truncation and trunk malformation, which are not found in either Dkk1(+/-) or Wnt3(+/-) embryos. Reducing the dose of Wnt3 gene in Dkk1(-/-) embryos partially rescues the truncated head phenotype. These findings highlight that head development is sensitive to the level of WNT3 signalling and that DKK1 is the key antagonist that modulates WNT3 activity during anterior morphogenesis.