Using a functional screen in Xenopus embryos, we identified a novel function for the HMG box protein XSox17β. Ectopic expression of XSox17β ventralizes embryos by inhibiting the Wnt pathway downstream of β-catenin but upstream of the Wnt-responsive gene Siamois. XSox17β also represses transactivation of a TCF/LEF-dependent reporter construct by Wnt and β-catenin. In animal cap experiments, it both activates transcription of endodermal genes and represses β-catenin-stimulated expression of dorsal genes. The inhibition activity of XSox17β maps to a region C-terminal to the HMG box; this region of XSox17β physically interacts with the Armadillo repeats of β-catenin. Two additional Sox proteins, XSox17α and XSox3, likewise bind to β-catenin and inhibit its TCF-mediated signaling activity. These results reveal an unexpected mechanism by which Sox proteins can modulate Wnt signaling pathways.