Canonical Wnt signaling, which is transduced by β‐catenin and lymphoid enhancer factor 1/T cell‐specific transcription factors (LEF1/TCFs), regulates many aspects of metazoan development and tissue renewal. Although much evidence has associated canonical Wnt/β‐catenin signaling with mood disorders, the mechanistic links are still unknown. Many components of the canonical Wnt pathway are involved in cellular processes that are unrelated to classical canonical Wnt signaling, thus further blurring the picture. The present review critically evaluates the involvement of classical Wnt/β‐catenin signaling in developmental processes that putatively underlie the pathology of mental illnesses. Particular attention is given to the roles of LEF1/TCFs, which have been discussed surprisingly rarely in this context. Highlighting recent discoveries, we propose that alterations in the activity of LEF1/TCFs, and particularly of transcription factor 7‐like 2 (TCF7L2), result in defects previously associated with neuropsychiatric disorders, including imbalances in neurogenesis and oligodendrogenesis, the functional disruption of thalamocortical circuitry and dysfunction of the habenula.