Interactions between the Wnt (wingless) and hedgehog signaling pathways were first described as playing a role in establishing boundaries between ectodermal cells in Drosophila segmentation. During the initiation of mammalian tooth development, boundaries that distinguish oral from dental ectoderm must be formed to correctly position the sites of tooth formation. We describe a reciprocal relationship between the expression of Wnt-7b in presumptive oral ectoderm and Shh in presumptive dental ectoderm in mouse embryos that mark boundaries between these cells with different developmental fates. By using a murine retrovirus to ectopically express Wnt-7b in presumptive dental ectoderm in mandibular arch explants, we show that Shh expression in the ectoderm and Ptc expression in the underlying ectomesenchyme are down-regulated, and tooth development is subsequently arrested. This suggests that Wnt-7b acts to repress Shh expression in oral ectoderm, thus maintaining the boundaries between oral and dental ectodermal cells. Implantation of beads soaked in Shh protein into Wnt-7b-infected explants resulted in complete rescue of tooth development, confirming that the repressive action of Wnt-7b specifically affects Shh signaling.